Waterstone Financial, Inc. — Q3 2026 Earnings Summary

Financial Performance:

• Consolidated net income was $6.2 million ($0.36 per diluted share) for the quarter ended September 30, 2026, compared to $7.9 million ($0.45 per diluted share) for the same period in 2025.
• Net income for the nine months ended September 30, 2026, totaled $20.6 million ($1.19 per diluted share), up from $18.7 million ($1.04 per diluted share) in the prior year period.
• Consolidated return on average assets (annualized) was 1.09% for the quarter, down from 1.42% in the prior year quarter; return on average equity was 6.93%, down from 9.14%.
• Net interest income for the quarter was $16.4 million, an increase from $14.7 million in the prior year quarter.
• Nonperforming assets as a percentage of total assets were 0.55% at September 30, 2026, compared to 0.27% at September 30, 2025.
• Past due loans as a percentage of total loans were 0.81% at September 30, 2026, compared to 0.50% at September 30, 2025.
• Book value per share was $19.29 at September 30, 2026, a decrease of $0.24 from the previous quarter, primarily due to treasury rate increases impacting accumulated other comprehensive losses.
• Total deposits were $1.44 billion at September 30, 2026, compared to $1.44 billion at December 31, 2025.
• Total assets were $2.25 billion at September 30, 2026, compared to $2.26 billion at December 31, 2025.

Guidance and Future Outlook:

• No specific forward guidance or future growth targets were provided in the press release.
• Management noted that mortgage banking sales margins remain under pressure due to elevated long-term rates and significant jumps in mortgage rates hindering origination volume.
• The company stated it remains in a strong capital position despite the decrease in book value.

Business Segments and Product Lines:

• Community Banking Segment:
  • Pre-tax income was $8.3 million, a decrease of $176,000 (2.1%) compared to $8.4 million in the prior year quarter.
  • Net interest income reached a record $16.0 million for the quarter, an increase of $1.4 million (9.6%) from the prior year, driven by a reduction in the average cost of funds and growth in average transaction deposits.
  • Net interest margin increased 30 basis points to 3.06% from 2.76% in the prior year quarter.
  • Average loans held for investment totaled $1.70 billion, an increase of 0.8% from the prior year, driven by multi-family mortgages offset by single-family decreases.
  • Average core retail deposits increased 3.0% to $1.35 billion, driven by money market and demand deposits.
  • Past due loans increased to $11.7 million, attributed to one significant relationship previously classified as substandard.
  • Provision for credit losses related to funded loans was a negative $83,000, compared to a negative $137,000 in the prior year.
  • Efficiency ratio was 49.55% for the quarter.
• Mortgage Banking Segment:
  • Pre-tax loss was $754,000, a swing from a $1.3 million pre-tax income in the prior year quarter.
  • Loan originations decreased 5.5% to $509.7 million, hindered by significant jumps in mortgage rates.
  • Mortgage banking non-interest income decreased 13.4% to $18.2 million.
  • Gross margin on loans sold decreased to 3.48% from 3.87% in the prior year, driven by lower sales margins.
  • The segment sold mortgage servicing rights related to $121.9 million in loans for a gain of $391,000.
  • Total compensation and benefits decreased 6.3% to $14.7 million due to lower commission and bonus expenses.
  • Total other noninterest expense increased 42.3% to $1.8 million, primarily due to an increased provision for loan sale losses.

Market and Competitive Landscape:

• Rising short-term and long-term treasury rates presented increased challenges for the company.
• Secondary market investors remain concerned about elevated long-term rates, impacting sales margins.
• The mortgage banking segment faced headwinds from a significant jump in mortgage rates affecting origination volume.
• Commercial real estate external qualitative risk factors decreased, offset by collateral-dependent reserves for a specific substandard loan.

Risks and Challenges:

• Rising treasury rates negatively impacted the value of accumulated other comprehensive losses and book value per share.
• Mortgage rates remain elevated, creating pressure on sales margins and hindering loan origination volumes.
• An increase in past due loans and non-performing assets was observed, linked to one significant substandard relationship.
• Increased provision for loan sale losses was recorded due to a pool of loans identified with additional risks to buy back.
• Forward-looking statements highlight risks including changes in interest rates, competition, regulatory changes, and economic trends.

Management Commentary and Tone:

• CEO William Bruss expressed pleasure with the "strong quarter" despite challenges from rising rates.
• Management highlighted the Community Banking segment's record net interest income and the reduction in the average cost of funds.
• Management acknowledged the Mortgage Banking segment's struggles with sales margins and origination volume but noted the segment's ability to generate gains from selling servicing rights.
• The tone remained confident regarding the company's strong capital position despite the book value decline.

Other Key Points:

• Dividends declared during the quarter totaled $0.17 per common share.
• The Community Banking segment's average core retail deposits grew 3.0% year-over-year.
• Brokered certificates of deposits averaged $80.4 million for the quarter, up from $61.8 million in the prior year.
• Total compensation, payroll taxes, and other employee benefits for the consolidated company increased 12.0% to $5.6 million in the Community Banking segment due to salary, health insurance, and ESOP expenses.
• The company operates 14 branch locations across southeastern Wisconsin and is licensed in 48 states for its mortgage corporation.