Waterstone Financial, Inc.

What they do

Waterstone Financial, Inc. became the holding company of WaterStone Bank SSB in 2014 following the mutual-to-stock conversion of Lamplighter Financial, MHC. The company reports two segments: community banking, which provides consumer and business banking products including loan products, deposit products, personal investment services, and commercial lending; and mortgage banking, conducted through Waterstone Mortgage Corporation, which originates residential mortgage loans primarily for sale in the secondary market. The community banking segment generates the significant majority of consolidated net interest income and requires the significant majority of the provision for credit losses, while the mortgage banking segment generates the significant majority of noninterest income and a majority of noninterest expenses.

Revenue drivers

• Community Banking net interest income — Generates the significant majority of consolidated net interest income, with quarterly net interest income of $15.8 million for the quarter ended June 30, 2026, a record for the segment and up $2.2 million, or 16.1%, from the prior-year quarter, driven by average loans held for investment of $1.68 billion.
• Mortgage Banking originations and sales — Conducted through Waterstone Mortgage Corporation, originates residential mortgage loans primarily for sale in the secondary market; generates the significant majority of noninterest income and posted pre-tax income of $1.6 million in the quarter ended June 30, 2026, down $403,000, or 20.2%, year over year.
• Net interest margin — Consolidated net interest margin reached 3.03% for the quarter ended June 30, 2026, up 43 basis points from 2.60% a year earlier and up six basis points from 2.97% in the linked quarter, driven by higher yields on loans and lower deposit and borrowing costs.
• Multi-family and single-family mortgage mix — Average loans held for investment growth was primarily due to increases in multi-family mortgages offset by a decrease in single-family mortgages, with the company noting category detail in its earnings release tables.

Recent performance

For the quarter ended June 30, 2026, Waterstone reported net income of $8.5 million, or $0.49 per diluted share, compared with $7.7 million, or $0.43 per diluted share, for the quarter ended June 30, 2025. Six-month net income was $14.5 million, or $0.84 per diluted share, versus $10.8 million, or $0.59 per diluted share, a year earlier. Consolidated annualized return on average assets was 1.52% and return on average equity was 9.65% for the second quarter of 2026. The community banking segment's pre-tax income rose 18.2% to $9.0 million, while mortgage banking pre-tax income fell 20.2% to $1.6 million. Nonperforming assets were 0.30% of total assets and past due loans were 0.63% of total loans at June 30, 2026.

Strategy

Management highlighted continued growth in average transaction deposits as a driver of lower funding costs and its mortgage banking segment's loan origination volume growth. During the quarter ended June 30, 2026, the company repurchased approximately 200,000 shares at a cost including the federal excise tax of $3.7 million, or $18.40 per share, and declared a quarterly dividend of $0.17 per common share. Management stated that $6.5 million was returned to shareholders through buybacks and dividends in the quarter, and that book value per share increased $0.51 during the quarter. The company cites progress on net interest margin expansion, reaching its highest level since the quarter ended December 31, 2022.

Risks

• Credit losses and allowance estimation — The allowance for credit losses requires extensive judgment over current conditions, reasonable and supportable forecasts, historical loss experience, internal risk ratings, prepayments, collateral values, and qualitative factors, any of which could produce materially different estimates.
• Regulatory supervision and enforcement — The company is supervised, examined, and subject to enforcement by the WDFI, the FDIC, and the Federal Reserve Board, which set minimum capital levels, restrict dividend timing and amounts, govern asset classification, determine loan loss reserve adequacy, and set assessments and fees.
• Interest rate and margin sensitivity — Inflation and interest rate changes can reduce margins and yields, mortgage banking revenues, fair value of financial instruments, and lending origination levels, or increase defaults, losses, or prepayments on loans held in portfolio or sold in secondary markets.
• Deposit and liquidity composition — Changes in the size and composition of the deposit portfolio, the percentage of uninsured deposits, and access to wholesale or low-cost funding could affect liquidity and funding costs.

Outlook

Management did not provide formal forward earnings guidance in the excerpts, but CEO William Bruss stated the company achieved another quarter of strong financial results and emphasized the net interest margin reaching its highest level since the quarter ended December 31, 2022. The community banking segment's record quarterly net interest income was attributed to growth in yields on loans held for investment and a reduction in cost of funds, partly from continued growth in average transaction deposits. Mortgage banking growth in loan origination volumes was offset by softer sales margins. The company continues to return capital through its quarterly dividend and share repurchase program.