# Waterstone Financial, Inc. (WSBF) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Waterstone Financial, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1569994/000143774923004917/wsbf20220421_10k.htm
Accession: 0001437749-23-004917
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WSBF/
All MD&A years: /company/WSBF/mda/
Previous year: /company/WSBF/mda/fy2021/ (FY 2021)
Next year: /company/WSBF/mda/fy2023/ (FY 2023)

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 of 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, 2022, compared to the year ended December 2021, and the financial condition as of December 31, 2022 compared to the financial condition as of December 31, 2021.

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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, 2022, compared the year ended December 31, 2021, 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, 2021 compared to the year ended December 31, 2020, 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 2021 Form 10-K, filed with the SEC on February 28, 2022.

Significant Items

There were no Significant Items for the years ended December 31, 2022 and 2021. 

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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:

[[GREPCENT_TABLE]]
[["","\u25cf","Our evaluation of current conditions;"],["","\u25cf","Our assessment that the physical condition of the real estate has not significantly changed since the last valuation date;"],["","\u25cf","Our determination of a reasonable and supportable economic forecast and selection of the reasonable and supportable forecast period;"],["","\u25cf","Our evaluation of historical loss experience;"],["","\u25cf","Our evaluation of changes in composition and characteristics of the loan portfolio, including internal risk ratings;"],["","\u25cf","Our estimate of expected prepayments;"],["","\u25cf","Our selection of models and modeling techniques may also have a material impact on the estimate;"],["","\u25cf","The value of underlying collateral, which may impact loss severity and certain cash flow assumptions for collateral-dependent, criticized and classified loans;"],["","\u25cf","Our selection and evaluation of qualitative factors; and"],["","\u25cf","Our estimate of expected cash flows on AFS debt securities in unrealized loss positions."]]
[[/GREPCENT_TABLE]]

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.

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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.

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.

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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.

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[[/GREPCENT_TABLE]]

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The prior year amounts presented are calculated under the prior accounting standard. 

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[[GREPCENT_TABLE]]
[["","","At or for the Year Ended December 31,"],["","","2022","","","2021","","","2020"],["Selected Financial Ratios and Other Data:"],["Performance Ratios:"],["Return on average assets","","","0.96","%","","","3.20","%","","","3.77","%"],["Return on average equity","","","4.91","","","","16.38","","","","20.18"],["Interest rate spread (1)","","","2.76","","","","2.47","","","","2.34"],["Net interest margin (2)","","","3.00","","","","2.68","","","","2.67"],["Noninterest expense to average assets","","","6.79","","","","7.71","","","","8.50"],["Efficiency ratio (3)","","","84.34","","","","65.94","","","","61.53"],["Average interest-earing assets to average interest-bearing liabilities","","","134.23","","","","130.76","","","","126.07"],["Dividend payout ratio (4)","","","146.07","","","","43.62","","","","38.55"],["Capital Ratios:"],["Waterstone Financial, Inc.:"],["Equity to total assets at end of period","","","18.24","%","","","19.53","%","","","18.91","%"],["Average equity to average assets","","","19.66","","","","19.53","","","","18.68"],["Total capital to risk-weighted assets","","","24.36","","","","29.01","","","","24.80"],["Tier 1 capital to risk-weighted assets","","","23.29","","","","27.99","","","","23.71"],["Common equity tier 1 capital to risk-weighted assets","","","23.29","","","","27.99","","","","23.71"],["Tier 1 capital to average assets","","","19.45","","","","19.29","","","","18.38"],["WaterStone Bank:"],["Total capital to risk-weighted assets","","","21.52","","","","25.52","","","","22.52"],["Tier 1 capital to risk-weighted assets","","","20.46","","","","24.50","","","","21.44"],["Common equity tier 1 capital to risk-weighted assets","","","20.46","","","","24.50","","","","21.44"],["Tier 1 capital to average assets","","","17.08","","","","16.88","","","","16.61"],["Asset Quality Ratios:"],["Allowance for credit losses - loans as a percent of total loans (5)","","","1.18","%","","","1.31","%","","","1.37","%"],["Allowance for credit losses - loans as a percent of non-performing loans (5)","","","412.28","","","","283.06","","","","338.54"],["Net recoveries to average outstanding loans during the period","","","(0.04",")","","","(0.07",")","","","(0.01",")"],["Non-performing loans as a percent of total loans","","","0.29","","","","0.46","","","","0.40"],["Non-performing assets as a percent of total assets","","","0.22","","","","0.26","","","","0.27"],["Other Data:"],["Number of full-service banking offices","","","14","","","","14","","","","14"],["Number of full-time equivalent employees","","","742","","","","870","","","","812"]]
[[/GREPCENT_TABLE]]

(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.

(5) The Company adopted ASU 2016-13 as of January 1, 2022. The prior year amounts presented are calculated under the prior accounting standard.

Comparison of Consolidated Waterstone Financial, Inc. Financial Condition at December 31, 2022 and at December 31, 2021

Total Assets.  Total assets decreased by $184.2 million, or 8.3%, to $2.03 billion at December 31, 2022 from $2.22 billion at December 31, 2021.  The decrease in total assets primarily reflects a decrease in cash and cash equivalents and loans held for sale, partially offset by an increase in loans held for investment, securities available for sale and other assets. The total assets decrease reflects liability decreases in deposits and borrowings.

Cash and Cash Equivalents.  Cash and cash equivalents decreased $330.1 million to $46.6 million at December 31, 2022 from $376.7 million at December 31, 2021.  The decrease in cash and cash equivalents primarily reflects the increases in loans held for investment, securities available for sale and decrease of funding sources from deposits and borrowings.

Securities Available for Sale. Securities available for sale increased by $17.6 million to $196.6 million at December 31, 2022 from $179.0 million at December 31, 2021. The increase was primarily due to purchases of mortgage-related securities to take advantage of the increase in interest rates. The purchases are exceeding security paydowns for the year and maturities of debt securities. Also offsetting the purchases, the decline in fair market value of the portfolio decreased due to rising interest rates. 

Loans Held for Sale.  Loans held for sale decreased $181.6 million, or 58.1%, to $131.2 million at December 31, 2022 from $312.7 million at December 31, 2021 due to the decrease of refinancing activity resulting from the increase in mortgage rates.

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Loans Receivable.  Loans receivable held for investment increased $304.4 million, or 25.2%, to $1.51 billion at December 31, 2022 from $1.21 billion at December 31, 2021. The increase in total loans receivable was attributable to increases in each of the one- to four-family, multi-family, and commercial real estate loan categories.

Allowance for Credit Losses.  The allowance for credit losses increased $2.0 million to $17.8 million at December 31, 2022 from $15.8 million at December 31, 2021.  The increase primarily resulted from the $1.0 million provision increase due to the increase in loans held in portfolio along with the CECL model adoption on January 1, 2022.  The CECL calculation resulted in an opening balance adjustment of $430,000 to increase the allowance for credit losses. Additionally, net recoveries totaled $519,000 for the year ended December 31, 2022. During the  year ended December 31, 2022, we made adjustments to our forecast factor to reflect the current economic forecast, and 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.

Prepaid Expenses and Other Assets.  Total prepaid expenses and other assets increased $14.6 million to $59.8 million at December 31, 2022 from $45.1 million at December 31, 2021. The increase was primarily due to an increase in the fair value mark on derivatives as interest rates increased and deferred taxes increased as unrealized losses on available for sale securities increased due to rising interest rates.  

Deposits.  Deposits decreased by $34.4 million to $1.20 billion at December 31, 2022, from $1.23 billion at December 31, 2021. The decrease was driven by a decrease of $66.2 million in money market and savings deposits offset by an increase of $16.2 million in demand deposits and an increase of $15.6 in time deposits.

Borrowings.  Total borrowings decreased $90.3 million to $386.8 million at December 31, 2022, from $477.1 million at December 31, 2021. The community banking segment paid off $420.0 million in long-term FHLB borrowings and $5.0 million in short-term borrowings, borrowing $150.0 million of new long-term FHLB borrowings, and $187.5 million in new short-term FHLB borrowings. External short-term borrowings at the mortgage banking segment decreased a total of $1.0 million to $1.1 million at December 31, 2022 from $2.0 million at December 31, 2021.

Other Liabilities.  Other liabilities increased $1.6 million to $70.1 million at December 31, 2022 compared to $68.5 million at December 31, 2021. Other liabilities increased primarily due to increase of the fair value mark on derivative liabilities related to the loans held for sale and the back-to-back swaps increased with the increase in interest rates offset by a decrease in dividends payable as a special dividend was declared in December 2021 and paid in February 2022.

Shareholders’ Equity.  Shareholders’ equity decreased by $62.3 million, or 14.4%, to $370.5 million at December 31, 2022 from $432.8 million at December 31, 2021. Shareholders' equity decreased primarily due to the declaration of dividends, a decrease in the fair value of the security portfolio, the repurchase of stock and the adoption of CECL. Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised and equity awards vested, and unearned ESOP shares vesting.

Comparison of Community Banking Segment Operations for the Years Ended December 31, 2022 and 2021

Net income from our community banking segment for the year ended December 31, 2022 totaled $22.8 million compared to $28.3 million for the year ended December 31, 2021.  Net interest income increased $555,000 to $56.6 million for the year ended December 31, 2022 compared to $56.1 million for the year ended December 31, 2021. Net interest income increased primarily due to an increase in interest earned on mortgage-related securities and cash as the federal funds rates raises throughout the year along with a decrease on borrowing interest expense as less borrowings were needed to fund the mortgage banking segment line of credit.  Offsetting the those increases to net interest income, interest earned on loans decreased as the mortgage banking segment line decreased as volumes slowed and interest expense on deposits increased as funding rates matched the federal funds rate increases.  

There was a provision for credit losses of $677,000 for the year ended December 31, 2022 compared to a negative provision for loan losses of $4.1 million for the year ended December 31, 2021. The provision for credit losses consisted of a $740,000 provision related to loans due to loan growth and a $62,000 of negative provision related to unfunded commitments as the balance decreased for the year ended December 31, 2022. During the year ended December 31, 2022, we made adjustments to our forecast factor to reflect the current economic forecast, and qualitative factors, primarily to account for the changes in internal metrics and external risk factors.  

Noninterest income decreased $837,000 for the year ended December 31, 2022 due primarily to a decrease in service fees on deposits and prepayment fees on loans during the year ended December 31, 2022, offset by a gain from death benefit received on one bank owned life insurance policy and an increase in bank owned life insurance as interest rates increased.

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Compensation, payroll taxes, and other employee benefits expense decreased $1.3 million to $19.0 million during the year ended December 31, 2022 primarily due to a decrease in health insurance, variable compensation, ESOP expense compared to the year ended December 31, 2021. Other noninterest expense increased $3.6 million to $5.6 million as certain loan-related expenses paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans increased. These fees are eliminated in the consolidated statements of income.

Comparison of Mortgage Banking Segment Operations for the Years Ended December 31, 2022 and 2021

Net loss totaled $3.4 million for the year ended December 31, 2022 compared to net income of $42.5 million for the year ended December 31, 2021. We originated $2.76 billion in mortgage loans held for sale (including sales to the community banking segment) during the year ended December 31, 2022, which represents a decrease of $1.47 billion, or 34.6%, from the $4.23 billion originated during the year ended December 31, 2021. The decrease in loan production volume was driven by a $986.3 million, or 76.6%, decrease in refinance products driven by an increase in fixed mortgage rates. Mortgage purchase products decreased $478.8 million, or 16.3% due to inventory constraints in the market, housing affordability, and as interest rates have increased. Total mortgage banking noninterest income decreased $93.5 million, or 47.3%, to $104.1 million during the year ended December 31, 2022 compared to $197.6 million during the year ended December 31, 2021. The decrease in mortgage banking noninterest income was related to a 34.6% decrease in volume and a 18.3% decrease in gross margin on loans originated and sold for the year ended December 31, 2022 compared to December 31, 2021.  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. 

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. 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 increased to 89.1% from 69.5% of total originations for the year ended December 31, 2022 and 2021, respectively, as refinance demand decelerated due to an increase in interest rates over the past year. The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 29.3% and 70.7%, respectively of all loan originations, respectively, during the year ended December 31, 2022, compared to 23.4% and 76.6% of all originations, respectively, during the year ended December 31, 2021.

During the year ended December 31, 2022, there were no sales of mortgage servicing rights. During the year ended December 31, 2021, the Company sold mortgage servicing rights related to $1.24 billion in loans serviced for third parties. The sale generated $12.4 million in net proceeds and a $4.0 million gain.

Total compensation, payroll taxes and other employee benefits decreased $34.3 million, or 29.7%, to $81.0 million for the year ended December 31, 2022 compared to $115.3 million for the year ended December 31, 2021. The decrease in compensation expense was primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased. During the year ended December 31, 2022, the segment has added 11 branches and a total of 130 loan origination personnel. Losses associated with these new branches totaled approximately $1.9 million during the year ended December 31, 2022. These branch losses are net of corporate revenue of approximately $1.2 million during the year ended December 31, 2022.

Waterstone Mortgage Corporation originates loans in various states. The states where we originate greater than 10% of total activity are Florida and New Mexico.

Comparison of Consolidated Waterstone Financial, Inc. Results of Operations for the Years Ended December 31, 2022 and 2021

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[[/GREPCENT_TABLE]]

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Average Balance Sheets, Interest and Yields/Costs

The following table set forth average balance sheets, annualized 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.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2022","","","2021","","","2020"],["","","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)","","$","1,467,306","","","","62,935","","","","4.29","%","","$","1,600,115","","","","64,366","","","","4.02","%","","$","1,716,341","","","","72,633","","","","4.23","%"],["Mortgage related securities (2)","","","162,584","","","","3,241","","","","1.99","%","","","103,324","","","","1,954","","","","1.89","%","","","101,345","","","","2,488","","","","2.45","%"],["Debt securities, federal funds sold and short-term investments (2)(3)","","","269,171","","","","4,271","","","","1.59","%","","","366,949","","","","3,827","","","","1.04","%","","","187,910","","","","3,644","","","","1.94","%"],["Total interest-earning assets","","","1,899,061","","","","70,447","","","","3.71","%","","","2,070,388","","","","70,147","","","","3.39","%","","","2,005,596","","","","78,765","","","","3.93","%"],["Noninterest-earning assets","","","120,744","","","","","","","","","","","","142,040","","","","","","","","","","","","147,697"],["Total assets","","$","2,019,805","","","","","","","","","","","$","2,212,428","","","","","","","","","","","$","2,153,293"],["Liabilities and equity"],["Interest-bearing liabilities:"],["Demand accounts","","$","72,751","","","","61","","","","0.08","%","","","64,653","","","","50","","","","0.08","%","","","47,410","","","","38","","","","0.08","%"],["Money market and savings accounts","","","391,170","","","","1,201","","","","0.31","%","","","363,930","","","","904","","","","0.25","%","","","264,722","","","","1,768","","","","0.67","%"],["Certificates of deposit","","","602,332","","","","3,601","","","","0.60","%","","","675,495","","","","3,466","","","","0.51","%","","","733,033","","","","12,559","","","","1.71","%"],["Total interest-bearing deposits","","","1,066,253","","","","4,863","","","","0.46","%","","","1,104,078","","","","4,420","","","","0.40","%","","","1,045,165","","","","14,365","","","","1.37","%"],["Borrowings","","","348,482","","","","8,428","","","","2.42","%","","","479,262","","","","9,948","","","","2.08","%","","","545,741","","","","10,619","","","","1.95","%"],["Total interest-bearing liabilities","","","1,414,735","","","","13,291","","","","0.94","%","","","1,583,340","","","","14,368","","","","0.91","%","","","1,590,906","","","","24,984","","","","1.57","%"],["Noninterest-bearing liabilities"],["Non interest-bearing deposits","","","159,495","","","","","","","","","","","","146,767","","","","","","","","","","","","116,771"],["Other noninterest-bearing liabilities","","","48,500","","","","","","","","","","","","50,140","","","","","","","","","","","","43,460"],["Total noninterest-bearing liabilities","","","207,995","","","","","","","","","","","","196,907","","","","","","","","","","","","160,231"],["Total liabilities","","","1,622,730","","","","","","","","","","","","1,780,247","","","","","","","","","","","","1,751,137"],["Equity","","","397,075","","","","","","","","","","","","432,181","","","","","","","","","","","","402,156"],["Total liabilities and equity","","$","2,019,805","","","","","","","","","","","$","2,212,428","","","","","","","","","","","$","2,153,293"],["Net interest income / Net interest rate spread (4)","","","","","","","57,156","","","","2.77","%","","","","","","","55,779","","","","2.48","%","","","","","","","53,781","","","","2.36","%"],["Less: taxable equivalent adjustment","","","","","","","202","","","","0.01","%","","","","","","","264","","","","0.01","%","","","","","","","281","","","","0.02","%"],["Net interest income, as reported","","","","","","","56,954","","","","2.76","%","","","","","","","55,515","","","","2.47","%","","","","","","","53,500","","","","2.34","%"],["Net interest-earning assets (5)","","$","484,326","","","","","","","","","","","$","487,048","","","","","","","","","","","$","414,690"],["Net interest margin (6)","","","","","","","","","","","3.00","%","","","","","","","","","","","2.68","%","","","","","","","","","","","2.67","%"],["Tax equivalent effect","","","","","","","","","","","0.01","%","","","","","","","","","","","0.01","%","","","","","","","","","","","0.01","%"],["Net interest margin on a fully tax equivalent basis","","","","","","","","","","","3.01","%","","","","","","","","","","","2.69","%","","","","","","","","","","","2.68","%"],["Average interest-earning assets to average interest-bearing liabilities","","","134.23","%","","","","","","","","","","","130.76","%","","","","","","","","","","","126.07","%"]]
[[/GREPCENT_TABLE]]

(1)   Includes net deferred loan fee amortization income of $684,000, $2.1 million and $1.7 million for the years ended December 31, 2022, 2021, and 2020, 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, 2022, 2021, and 2020.  The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 1.51%, 0.97%, and 1.79% for the years ended December 31, 2022, 2021, and 2020, 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.

- 47 -

Table of Contents

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.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","Years Ended December 31,"],["","","2022 versus 2021","","","2021 versus 2020"],["","","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)","","$","(5,567",")","","$","4,136","","","$","(1,431",")","","$","(3,968",")","","$","(4,299",")","","$","(8,267",")"],["Mortgage related securities (3)","","","1,190","","","","97","","","","1,287","","","","47","","","","(581",")","","","(534",")"],["Other interest-earning assets (3)(4)","","","(1,204",")","","","1,648","","","","444","","","","2,398","","","","(2,215",")","","","183"],["Total interest-earning assets","","","(5,581",")","","","5,881","","","","300","","","","(1,523",")","","","(7,095",")","","","(8,618",")"],["Interest expense:"],["Demand accounts","","","11","","","","-","","","","11","","","","12","","","","-","","","","12"],["Money market and savings accounts","","","71","","","","226","","","","297","","","","1,285","","","","(2,149",")","","","(864",")"],["Certificates of deposit","","","(214",")","","","349","","","","135","","","","(915",")","","","(8,178",")","","","(9,093",")"],["Total interest-bearing deposits","","","(132",")","","","575","","","","443","","","","382","","","","(10,327",")","","","(9,945",")"],["Borrowings","","","(3,790",")","","","2,270","","","","(1,520",")","","","(1,481",")","","","810","","","","(671",")"],["Total interest-bearing liabilities","","","(3,922",")","","","2,845","","","","(1,077",")","","","(1,099",")","","","(9,517",")","","","(10,616",")"],["Net change in net interest income","","$","(1,659",")","","$","3,036","","","$","1,377","","","$","(424",")","","$","2,422","","","$","1,998"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes net deferred loan fee amortization income of $684,000, $2.1 million and $1.7 million for the years ended December 31, 2022, 2021, and 2020, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Non-accrual loans have been included in average loans receivable balance."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Includes available for sale securities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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, 2022, 2021, and 2020."]]
[[/GREPCENT_TABLE]]

Net Interest Income

Net interest income increased $1.4 million, or 2.6%, to $57.0 million during the year ended December 31, 2022 compared to $55.5 million during the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["","\u2022","Interest income on loans decreased $1.4 million, or 2.2%, to $62.9 million during the year ended December 31, 2022 compared to $64.4 million during the year ended December 31, 2021 due primarily to a $144.9 million, or 45.6%, decrease in average loans as loans held for sale originations decreased as interest rates increased. This decrease was partially offset by a 27 basis point increase in average yield on loans as interest rates continue to increase over the past year and an increase in average loan balance of $12.1 million, or 0.9%, in the average balance of loans held in portfolio."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Interest income from mortgage related securities increased $1.3 million, or 65.9%, primarily as the average balance increased $59.3 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Interest expense on time deposits increased $135,000, or 3.9%, primarily due to a nine basis point increase in average cost of time deposits. Offsetting the average cost of time deposits increase, the average balance of time deposits decreased $73.2 million compared to the prior year."]]
[[/GREPCENT_TABLE]]

- 48 -

Table of Contents

[[GREPCENT_TABLE]]
[["","\u2022","Interest expense on money market, savings, and escrow accounts increased $297,000, or 32.9%, due primarily to a six basis point increase in average cost of money market, savings, and escrow accounts and the average balance increased $27.2 million."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Interest expense on borrowings decreased $1.5 million, or 15.3%, due to a $130.8 million decrease in the average balance of borrowings during the year ended December 31, 2022 compared to the year ended December 31, 2021 as $470.0 million in FHLB borrowings paid off and $385.7 million in new FHLB borrowings during the year ended December 31, 2022. The FHLB borrowings decreased was primarily due to the decrease in loans held for sale."]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

The Company adopted ASC Topic 326 as of January 1, 2022, which resulted in an opening balance adjustment of $430,000 to increase the allowance for credit losses. Additionally, there was a $1.4 million opening balance adjustment to record an allowance for credit losses on unfunded loan commitments, which is presented in Other Liabilities on the Consolidated Statements of Financial Condition. Net of tax impact, the adoption of the CECL model resulted in a $1.4 million reduction to retained earnings.

There was a provision for credit losses of $968,000 during the year ended December 31, 2022 compared to a $4.0 million negative provision for loan losses for the year ended December 31, 2021. The $968,000 provision for credit losses consisted of a $1.0 million provision related to loans and a $62,000 of negative provision related to unfunded commitments for the year ended December 31, 2022. During the year ended December 31, 2022, we made adjustments to our forecast factor to reflect the current economic forecast, and qualitative factors, primarily to account for the changes in internal metrics and external risk factors. 

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

Noninterest Income

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2022","","","2021","","","$ Change","","","% Change"],["","","(Dollars in Thousands)"],["Service charges on loans and deposits","","$","2,202","","","$","3,325","","","$","(1,123",")","","","(33.8","%)"],["Increase in cash surrender value of life insurance","","","1,738","","","","1,615","","","","123","","","","7.6","%"],["Mortgage banking income","","","99,560","","","","191,035","","","","(91,475",")","","","(47.9","%)"],["Other","","","2,055","","","","7,220","","","","(5,165",")","","","(71.5","%)"],["Total noninterest income","","$","105,555","","","$","203,195","","","$","(97,640",")","","","(48.1","%)"]]
[[/GREPCENT_TABLE]]

Total noninterest income decreased $97.6 million, or 48.1%%, to $105.6 million during the year ended December 31, 2022 compared to $203.2 million during the year ended December 31, 2021. The decrease resulted primarily from a decrease in mortgage banking income along with decreases from no gain on sale of mortgage servicing rights.

[[GREPCENT_TABLE]]
[["","\u2022","The decrease in mortgage banking income was primarily the result of a decrease in loan origination volume and gross margin on loans originated and sold. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. Total loan origination volume on a consolidated basis decreased $1.65 billion, or 39.3%, to $2.55 billion during the year ended December 31, 2022 compared to $4.20 billion during the year ended December 31, 2021. Gross margin on loans originated and sold decreased 18.3% 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, 2022 and 2021\" above, for additional discussion of the increase in mortgage banking income."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Service charges on loans and deposits decreased primarily due to a decrease in loan prepayment fees."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","The decrease in other noninterest income was due primarily to a gain on sale of mortgage servicing rights in 2021 and decreases in mortgage servicing fee income as a result of the servicing fees prior to the sale. During the year ended December 31, 2021, the Company sold mortgage servicing rights related to $1.24 billion in loans serviced for third parties. The sale generated $12.4 million in net proceeds and a $4.0 million gain. There was no comparable sale during the year ended December 31, 2022. As of December 31, 2022 and December 31, 2021, the Company maintained servicing rights related to $409.6 million and $204.8 million, respectively, in loans previously sold to third parties. Offsetting the decreases, there was a $340,000 increase in gain from death benefit received on one bank owned life insurance policy during the year ended December 31, 2022 compared to none during the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

- 49 -

Table of Contents

Noninterest Expenses

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2022","","","2021","","","$ Change","","","% Change"],["","","(Dollars in Thousands)"],["Compensation, payroll taxes, and other employee benefits","","$","99,565","","","$","135,115","","","$","(35,550",")","","","(26.3","%)"],["Occupancy, office furniture, and equipment","","","8,706","","","","9,612","","","","(906",")","","","(9.4","%)"],["Advertising","","","3,976","","","","3,528","","","","448","","","","12.7","%"],["Data processing","","","4,470","","","","3,950","","","","520","","","","13.2","%"],["Communications","","","1,189","","","","1,309","","","","(120",")","","","(9.2","%)"],["Professional fees","","","1,815","","","","1,275","","","","540","","","","42.4","%"],["Real estate owned","","","19","","","","3","","","","16","","","","533.3","%"],["Loan processing expense","","","4,744","","","","4,610","","","","134","","","","2.9","%"],["Other","","","12,578","","","","11,192","","","","1,386","","","","12.4","%"],["Total noninterest expenses","","$","137,062","","","$","170,594","","","$","(33,532",")","","","(19.7","%)"]]
[[/GREPCENT_TABLE]]

Total noninterest expenses decreased $33.5 million, or 19.7%, to $137.1 million during the year ended December 31, 2022 compared to $170.6 million during the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["","\u2022","Compensation, payroll taxes and other employee benefit expense at our mortgage banking segment decreased $34.3 million, or 29.7%, to $81.0 million for the year ended December 31, 2022. The decrease in compensation expense was primarily related to decreased commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Compensation, payroll taxes and other employee benefits expense at the community banking segment decreased $1.3 million, or 6.3%, to $19.0 million during the year ended December 31, 2022. The decrease was primarily due to a decrease in health insurance, variable compensation, and ESOP expense as the average stock price has decreased compared to the year ending December 31, 2021, offset by an increase in salaries due to annual raises."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $770,000 to $5.1 million during the year ended December 31, 2022 primarily resulting from lower rent, computer, and depreciation expenses."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Occupancy, office furniture and equipment expense at the community banking segment decreased $136,000 to $3.6 million during the year ended December 31, 2022 compared to the prior year. The decrease was due primarily to decreased depreciation expense and maintenance expense."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Advertising expense increased $448,000, or 12.7%, to $4.0 million during the year ended December 31, 2022. This was primarily due to an increase at the mortgage banking segment in an effort to increase new customers."],["","\u2022","Data processing expense increased $520,000, or 13.2%, to $4.5 million during the year ended December 31, 2022. This was primarily due to increases at the community banking and mortgage banking segments for continued investments in technology and security."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Professional fees increased $540,000, or 42.4%, to $1.8 million during the year ended December 31, 2022. The increase was due to receiving a countersuit settlement related to a previously closed legal matter at the mortgage banking segment during the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Other noninterest expense increased $1.3 million, or 12.4%, to $12.6 million during the year ended December 31, 2022. Other noninterest expenses increased at the mortgage banking segment increased as the provision for loan sale losses and corporate meetings expenses increased during the year ended December 31, 2022. Offsetting the increases at the mortgage banking segment, the amortization expense on mortgage servicing rights decreased due to the bulk sale of mortgage servicing rights during the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

- 50 -

Table of Contents

Income Taxes

Income tax expense decreased $16.3 million to $5.0 million during the year ended December 31, 2022, compared to $21.3 million during the year ended December 31, 2021 as pretax income decreased $67.6 million.  Income tax expense was recognized during the year ended December 31, 2022 at an effective rate of 20.4% compared to an effective rate of 23.1% during the year ended December 31, 2021. The decrease in the effective rate reflects an increase of permanent deductions relative to the amount of pretax income and additionally the 2022 rate reflects the lower state tax apportionment based on the final 2020 tax returns. During the year ended  December 31, 2021, the Company recorded a $949,000 return to provision income tax adjustment to reflect actual state tax apportionment based on the final 2021 tax returns. There was no return to provision adjustment during the year ended December 31, 2022.  

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. The Bank’s primary and total regulatory liquidity at December 31, 2022 were 4.49% and 19.46%, respectively.

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, 2022 and 2021, $46.6 million and $376.7 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, 2022, and 2021, we originated on a consolidated basis $2.55 billion and $4.20 billion in loans for sale and sold loans on a consolidated basis of $2.81 billion and $4.48 billion.  During the year ended December 2022, loan originations net of loan repayments resulted in a negative cash flows of $303.9 million. During the year ended December 2021, loan repayments net of loan originations resulted in a positive cash flows of $170.3 million. Cash received from the principal repayments of debt and mortgage related securities and maturity and calls of debt securities totaled $50.7 million and $49.5 million for the years ended December 31, 2022 and 2021, respectively. We purchased $90.0 million and $73.7 million in debt securities and mortgage related securities classified as available for sale during the years ended December 31, 2022 and 2021, respectively. The net decrease in deposits was $34.4 million for the year ending December 31, 2022. The net increase in deposits was $48.5 million for the year ending December 31, 2021. We received a $1.2 million death benefit on a bank owned life insurance policy in 2022. There were net decreases in borrowings of $90.3 million and $30.9 million for the years ended December 31, 2022 and 2021.  During the years ended December 31, 2022 and 2021, we repurchased common stock of $47.8 million and $10.2 million, respectively.  During the years ended December 31, 2022 and 2021, we paid cash dividends on common stock of $30.3 million and $30.4 million, respectively.

Deposits decreased by $34.4 million from December 31, 2021 to December 31, 2022. The decrease was driven by a decrease of $66.2 million in money market and savings deposits offset by an increase of $16.2 million in demand deposits and $15.6 million in time deposits. Deposit flows are generally affected by the level of interest rates, market conditions and 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, 2022, we had $185.7 million in short term advances from the FHLB. At December 31, 2022, we had $200.0 million in long term advances from the FHLB with contractual maturity dates in 2025, 2027, and 2032. There are four advances that have contractual maturities in 2025. The 2027 advance has a contractual maturity date in December 2027.  The 2032 advance has a quarterly call options which begins in March 2023. As an additional source of funds, the mortgage banking segment has a repurchase agreement. At December 31, 2022, we had $1.1 million outstanding under the repurchase agreement with a total outstanding commitment of $50.0 million. 

- 51 -

Table of Contents

At December 31, 2022, we had outstanding commitments to originate loans receivable of $61.2 million.  In addition, at December 31, 2022, we had unfunded commitments under construction loans of $48.5 million, unfunded commitments under business lines of credit of $17.4 million and unfunded commitments under home equity lines of credit and standby letters of credit of $11.1 million. At December 31, 2022, certificates of deposit scheduled to mature in less than one year totaled $502.3 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 decreased by $62.3 million, or 14.4%, to $370.5 million at December 31, 2022 from $432.8 million at December 31, 2021. Shareholders' equity decreased primarily due to the declaration of dividends, a decrease in the fair value of the security portfolio, the repurchase of stock and the adoption of CECL. Partially offsetting the decreases, there were increases due to the net income, additional paid-in capital as stock options were exercised and equity awards vested, and unearned ESOP shares vesting.

The Company's Board of Directors authorized a stock repurchase program in the fourth quarter of 2021. As of December 31, 2022, the Company had repurchased 13.9 million shares at an average price of $15.27 under previously approved stock repurchase plans.

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, 2022, 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, 2022, we repaid $5.0 million in FHLB short-term debt and $470.0 million in FHLB long-term debt and borrowed $200.0 million of FHLB long-term debt and $185.7 million of short-term debt. 

See Note 8 - Borrowings of the notes to the consolidated financial statements for additional information about the remaining maturities of our FHLB long-term debt.

See Note 14 - 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, 2022 and the respective maturity dates.

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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.

Quarterly Financial Information

The following table sets forth certain quarterly data for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Quarter Ended"],["","","March 31","","","June 30","","","September 30","","","December 31"],["","","(In Thousands, except per share data)"],["2022 (unaudited)"],["Interest income","","$","15,030","","","$","16,416","","","$","18,125","","","$","20,674"],["Interest expense","","","3,166","","","","2,335","","","","2,727","","","","5,063"],["Net interest income","","","11,864","","","","14,081","","","","15,398","","","","15,611"],["Provision (credit) for credit losses (1)","","","(76",")","","","48","","","","332","","","","664"],["Net interest income after provision for credit losses (1)","","","11,940","","","","14,033","","","","15,066","","","","14,947"],["Total noninterest income","","","29,818","","","","31,238","","","","27,404","","","","17,095"],["Total noninterest expense","","","34,935","","","","35,050","","","","35,694","","","","31,384"],["Income before income taxes","","","6,823","","","","10,221","","","","6,776","","","","658"],["Income taxes","","","1,532","","","","2,231","","","","1,506","","","","(277",")"],["Net income","","$","5,291","","","$","7,990","","","$","5,270","","","$","935"],["Income per share - basic","","$","0.23","","","$","0.36","","","$","0.25","","","$","0.04"],["Income per share - diluted","","$","0.23","","","$","0.36","","","$","0.25","","","$","0.04"],["2021 (unaudited)"],["Interest income","","$","17,969","","","$","17,824","","","$","17,506","","","$","16,584"],["Interest expense","","","4,017","","","","3,547","","","","3,392","","","","3,412"],["Net interest income","","","13,952","","","","14,277","","","","14,114","","","","13,172"],["Provision for loan losses (1)","","","(1,070",")","","","(750",")","","","(700",")","","","(1,470",")"],["Net interest income after provision for loan losses (1)","","","15,022","","","","15,027","","","","14,814","","","","14,642"],["Total noninterest income","","","56,199","","","","52,044","","","","52,936","","","","42,016"],["Total noninterest expense","","","43,000","","","","43,297","","","","43,323","","","","40,974"],["Income before income taxes","","","28,221","","","","23,774","","","","24,427","","","","15,684"],["Income taxes","","","6,877","","","","5,880","","","","5,427","","","","3,131"],["Net income","","$","21,344","","","$","17,894","","","$","19,000","","","$","12,553"],["Income per share - basic","","$","0.90","","","$","0.75","","","$","0.80","","","$","0.53"],["Income per share - diluted","","$","0.89","","","$","0.74","","","$","0.79","","","$","0.53"]]
[[/GREPCENT_TABLE]]

(1) The Company adopted ASU 2016-13 as of January 1, 2022. The prior year amount presented is calculated under the prior accounting standard. 

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