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What changed in Waterstone Financial, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Waterstone Financial, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+370 added−357 removedSource: 10-K (2024-03-06) vs 10-K (2023-02-28)

Top changes in Waterstone Financial, Inc.'s 2023 10-K

370 paragraphs added · 357 removed · 315 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

180 edited+11 added−12 removed204 unchanged
Biggest changeOn- to four-family Multi family Home Equity Construction and Land Weighted Weighted Weighted Weighted Maturity period as of Average Average Average Average December 31, 2022 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in Thousands) One year or less $ 12,485 3.68 % $ 17,242 4.36 % $ 1,212 6.44 % $ 568 5.99 % More than one year through five years 50,726 4.68 % 433,847 4.02 % 6,149 6.81 % 25,940 5.54 % More than five years through 15 years 66,478 4.97 % 225,422 4.89 % 4,055 4.69 % 35,986 3.90 % More than 15 years 339,878 4.75 % 1,470 4.01 % 39 5.13 % - 0.00 % Total $ 469,567 4.74 % $ 677,981 4.32 % $ 11,455 6.01 % $ 62,494 4.60 % Commercial Real Estate Commercial Business Consumer Total Weighted Weighted Weighted Weighted Maturity period as of Average Average Average Average December 31, 2022 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in Thousands) One year or less $ 27,745 4.34 % $ 4,926 6.94 % $ 774 7.98 % $ 64,952 4.51 % More than one year through five years 160,154 4.56 % 11,903 5.03 % - 0.00 % 688,719 4.29 % More than five years through 15 years 75,074 4.30 % 8,105 5.91 % - 0.00 % 415,120 4.73 % More than 15 years - - - - - 0.00 % 341,387 4.74 % Total $ 262,973 4.46 % $ 24,934 5.70 % $ 774 7.98 % $ 1,510,178 4.52 % The following table sets forth the scheduled repayments of fixed and adjustable rate loans at December 31, 2022 that are contractually due after December 31, 2023.
Biggest changeOne- to four-family Multi family Home Equity Construction and Land Weighted Weighted Weighted Weighted Maturity period as of Average Average Average Average December 31, 2023 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in Thousands) One year or less $ 11,383 3.61 % $ 10,656 5.83 % $ 877 7.75 % $ 868 7.26 % More than one year through five years 55,451 5.42 % 500,717 4.62 % 5,981 8.06 % 47,524 5.72 % More than five years through 15 years 65,444 5.76 % 194,779 5.56 % 6,332 6.60 % 4,979 4.52 % More than 15 years 418,912 5.28 % 1,414 6.01 % 38 5.26 % - - Total $ 551,190 5.32 % $ 707,566 4.90 % $ 13,228 7.33 % $ 53,371 5.63 % Commercial Real Estate Commercial Business Consumer Total Weighted Weighted Weighted Weighted Maturity period as of Average Average Average Average December 31, 2023 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in Thousands) One year or less $ 26,917 6.16 % $ 4,843 8.82 % $ 848 16.10 % $ 56,392 6.00 % More than one year through five years 230,922 5.12 % 24,721 5.87 % - 0.00 % 865,316 4.93 % More than five years through 15 years 43,053 4.88 % 7,556 5.96 % - 0.00 % 322,143 5.53 % More than 15 years - - - - - - 420,364 5.28 % Total $ 300,892 5.18 % $ 37,120 6.27 % $ 848 16.10 % $ 1,664,215 5.17 % The following table sets forth the scheduled repayments of fixed and adjustable rate loans at December 31, 2023 that are contractually due after December 31, 2024.
Established in 2002, Main Street Real Estate Holdings, LLC was established to acquire and hold WaterStone Bank office and retail facilities, both owned and leased. Main Street Real Estate Holdings, LLC currently conducts real estate broker activities limited to real estate owned. Market Area WaterStone Bank.
Main Street Real Estate Holdings, LLC. Established in 2002, Main Street Real Estate Holdings, LLC was established to acquire and hold WaterStone Bank office and retail facilities, both owned and leased. Main Street Real Estate Holdings, LLC currently conducts real estate broker activities limited to real estate owned. Market Area WaterStone Bank.
If the remaining book value is not deemed to be fully collectible, all payments received are applied to unpaid principal.
If the remaining book value is not deemed to be fully collectible, all payments received are applied to unpaid principal.
Determination as to the ultimate collectability of the remaining book value is supported by an updated credit department evaluation of the borrower's financial condition and prospects for repayment, including consideration of the borrower's sustained historical repayment performance and other relevant factors.
Determination as to the ultimate collectability of the remaining book value is supported by an updated credit department evaluation of the borrower's financial condition and prospects for repayment, including consideration of the borrower's sustained historical repayment performance and other relevant factors.
Investments in collateralized mortgage obligations involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities.
Investments in collateralized mortgage obligations involve a risk that actual may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities.
Investments in mortgage-backed securities involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities.
Investments in mortgage-backed securities involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby changing the net yield on such securities.
Federal regulations require Federal Deposit Insurance Corporation insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
Federal regulations require Federal Deposit Insurance Corporation insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
For example, a savings bank that is categorized as “undercapitalized” is subject to growth limitations and is required to submit a capital restoration plan, and a holding company that controls such a savings bank is required to guarantee that the savings bank complies with the restoration plan. A “significantly undercapitalized” savings bank may be subject to additional restrictions.
For example, a savings bank that is categorized as “undercapitalized” is subject to growth limitations and is required to submit a capital restoration plan, and a holding company that controls such a savings bank is required to guarantee that the savings bank complies with the capital restoration plan. A “significantly undercapitalized” savings bank may be subject to additional restrictions.
An exception to the requirement is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the savings bank and that does not give any preference to insiders of the bank over other employees of the bank.
An exception to the requirement is made for extensions of credit made pursuant to a benefit or compensation plan of a savings bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
Transactions between Bank Customers and Affiliates Wisconsin savings banks, such as WaterStone Bank, are subject to the prohibitions on certain tying arrangements.
Transactions between WaterStone Bank Customers and Affiliates Wisconsin savings banks, such as WaterStone Bank, are subject to the prohibitions on certain tying arrangements.
Subject to certain exceptions, a savings bank is prohibited from extending credit to or offering any other service to a customer, or fixing or varying the consideration for such extension of credit or service, on the condition that such customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution.
Subject to certain exceptions, a savings bank is prohibited from extending credit to or offering any other service to a customer, or fixing or varying the consideration for such extension of credit or service, on the condition that such customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution or its affiliates.
In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such things as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.
In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such things as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the deposit insurance fund, the convenience and needs of the community and competitive factors.
The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a company’s common stock dividend.
The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a holding company’s common stock dividend.
Loan officers, with concurrence from independent credit officers and underwriters, are authorized to approve and close any loan that qualifies under WaterStone Bank underwriting guidelines within the following lending limits: ● Any secured mortgage loan up to $500,000 for a borrower with total outstanding loans from us of less than $1.0 million that is independently underwritten can be approved by the Chief Credit Officer or select lending personnel. ● Any secured mortgage loan up to $1.0 million can be approved jointly the Chief Executive Officer. ● Any secured mortgage loan ranging from $500,001 to $3.0 million or any new loan to a borrower with outstanding loans from us exceeding $1.0 million must be approved by the Officer Loan Committee. ● Any non-real estate loan up to $250,000 for a borrower with total outstanding loans from us of less than $250,000 that is independently underwritten can be approved by select lending personnel. ● Any non-real estate loan up to $500,000 for a borrower with total outstanding loans from us of less than $500,000 that is independently underwritten can be approved by the Chief Executive Officer or Business Banking Manager. ● Any non-real estate loan ranging from $500,001 to $3.0 million or any new non-real estate loan to a borrower with outstanding loans exceeding $500,000 must be approved by the Officer Loan Committee. ● Any new loan over $3.0 million must be approved by the Officer Loan Committee and the board of directors prior to closing.
Loan officers, with concurrence from independent credit officers and underwriters, are authorized to approve and close any loan that qualifies under WaterStone Bank underwriting guidelines within the following lending limits: ● Any secured mortgage loan up to $500,000 for a borrower with total outstanding loans from us of less than $1.0 million that is independently underwritten can be approved by the Chief Credit Officer or select lending personnel. ● Any secured mortgage loan up to $1.0 million can be approved by the Chief Executive Officer. ● Any secured mortgage loan ranging from $500,001 to $3.0 million or any new loan to a borrower with outstanding loans from us exceeding $1.0 million must be approved by the Officer Loan Committee. ● Any non-real estate loan up to $250,000 for a borrower with total outstanding loans from us of less than $250,000 that is independently underwritten can be approved by select lending personnel. ● Any non-real estate loan up to $500,000 for a borrower with total outstanding loans from us of less than $500,000 that is independently underwritten can be approved by the Chief Executive Officer or Business Banking Manager. ● Any non-real estate loan ranging from $500,001 to $3.0 million or any new non-real estate loan to a borrower with outstanding loans exceeding $500,000 must be approved by the Officer Loan Committee. ● Any new loan over $3.0 million must be approved by the Officer Loan Committee and the board of directors prior to closing.
Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. - 8 - Table of Contents The table below sets forth the amounts and categories of our non-accrual loans and real estate owned at the dates indicated.
Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. - 8 - The table below sets forth the amounts and categories of our non-accrual loans and real estate owned at the dates indicated.
Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund a proposed dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.
Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund a proposed dividend or the holding company’s overall rate of earnings retention is inconsistent with the holding company’s capital needs and overall financial condition.
Under the regulations, a bank is deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio of 8.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and a common equity Tier 1 ratio of 6.5% or more, and is not subject to any written capital order or directive; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a Tier 1 leveraged capital ratio of 4.0% or more and a common equity Tier 1 ratio of 4.5% or more, and does not meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 6.0%, a Tier 1 leverage capital ratio that is less than 4.0% or a common equity Tier 1 ratio of less than 4.5%; (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0% and a Tier 1 risk-based capital ratio that is less than 4.0% or a common equity Tier 1 ratio of less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. - 22 - Table of Contents Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an institution classified as less than well capitalized to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).
Under the regulations, a bank is deemed to be (i) "well capitalized" if it has total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 8.0% or more, has a Tier 1 leveraged capital ratio of 5.0% or more and a common equity Tier 1 ratio of 6.5% or more, and is not subject to any written capital order or directive; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a Tier 1 leveraged capital ratio of 4.0% or more and a common equity Tier 1 capital ratio of 4.5% or more, and does not meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 6.0%, a Tier 1 leverage capital ratio that is less than 4.0%, a Tier 1 leverage capital ratio that is less than 3.0%, or a common equity Tier 1 capital ratio of less than 4.5%; (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0% and a Tier 1 risk-based capital ratio that is less than 4.0% or a common equity Tier 1 ratio of less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. - 22 - Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an institution classified as less than well capitalized to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).
The dividend rate and continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. Federal Securities Laws Regulation Securities Exchange Act. Waterstone Financial common stock is registered with the Securities and Exchange Commission.
The dividend rate and continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. - 26 - Federal Securities Laws Regulation Securities Exchange Act. Waterstone Financial common stock is registered with the Securities and Exchange Commission.
The real estate lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators. - 20 - Table of Contents The Interagency Guidelines, among other things, require a depository institution to establish internal loan-to-value limits for real estate loans that are not in excess of the following supervisory limits: ● for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral; ● for land development loans (i.e., loans for the purpose of improving unimproved property prior to the erection of structures), the supervisory limit is 75%; ● for loans for the construction of commercial, over four-family or other non-residential property, the supervisory limit is 80%; ● for loans for the construction of one- to four-family properties, the supervisory limit is 85%; and ● for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing property, including non-owner occupied, one- to four-family property), the limit is 85%.
The real estate lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies ("Interagency Guidelines") that have been adopted by the federal bank regulators. - 20 - The Interagency Guidelines, among other things, require a depository institution to establish internal loan-to-value limits for real estate loans that are not in excess of the following supervisory limits: ● for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral; ● for land development loans (i.e., loans for the purpose of improving unimproved property prior to the erection of structures), the supervisory limit is 75%; ● for loans for the construction of commercial, over four-family or other non-residential property, the supervisory limit is 80%; ● for loans for the construction of one- to four-family properties, the supervisory limit is 85%; and ● for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing property, including non-owner occupied, one- to four-family property), the limit is 85%.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation.
Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or condition imposed by the Federal Deposit Insurance Corporation.
The fair value is primarily based upon updated appraisals in addition to an analysis of current real estate market conditions. - 12 - Table of Contents Allowance for Credit Losses The following table sets forth activity in our allowance for credit losses - loans for the years indicated.
The fair value is primarily based upon updated appraisals in addition to an analysis of current real estate market conditions. - 12 - Allowance for Credit Losses The following table sets forth activity in our allowance for credit losses - loans for the years indicated.
For example, the regulations specify that a bank’s Community Reinvestment Act performance will be considered in its expansion (e.g., branching or merger) proposals and may be the basis for approving, denying or conditioning the approval of an application.
For example, federal regulations specify that a bank’s Community Reinvestment Act performance will be considered in its expansion (e.g., branching or merger) proposals and may be the basis for approving, denying or conditioning the approval of an application.
Moreover, during periods of rapidly declining interest rates the interest income received from the adjustable rate loans can be significantly reduced, thereby adversely affecting interest income. - 5 - Table of Contents All residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise transfers the real property subject to the mortgage and the loan is not repaid.
Moreover, during periods of rapidly declining interest rates the interest income received from the adjustable rate loans can be significantly reduced, thereby adversely affecting interest income. - 5 - All residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise transfers the real property subject to the mortgage and the loan is not repaid.
Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, (which is generally 15% of capital and surplus).
Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks (which is generally 15% of unimpaired capital and unimpaired surplus).
These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution.
These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in supervisory or enforcement action by the banking regulators against a financial institution.
Federal regulations require annual on-site examinations for all depository institutions except certain well-capitalized and highly rated institutions with assets of less than $3 billion which are examined every 18 months. - 24 - Table of Contents Customer Privacy Under Wisconsin and federal law and regulations, savings banks, such as WaterStone Bank, are required to develop and maintain privacy policies relating to information on its customers, restrict access to and establish procedures to protect customer data.
Federal regulations require annual on-site examinations for all depository institutions except certain well-capitalized and highly rated institutions with assets of less than $3 billion which are examined every 18 months. - 24 - Customer Privacy Under Wisconsin and federal law and regulations, savings banks, such as WaterStone Bank, are required to develop and maintain privacy policies relating to information on its customers, restrict access to and establish procedures to protect customer data.
At December 31, 2022, WaterStone Bank did not have any loans which exceeded the “loans-to-one borrower” limitations. In addition, under Wisconsin law, WaterStone Bank must qualify for and maintain a level of qualified thrift investments equal to 60% of its assets as prescribed in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended.
At December 31, 2023, WaterStone Bank did not have any loans which exceeded the “loans-to-one borrower” limitations. In addition, under Wisconsin law, WaterStone Bank must qualify for and maintain a level of qualified thrift investments equal to 60% of its assets as prescribed in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended.
These five loans did not have any charge-offs or require any specific valuation allowances as of December 31, 2022. Interest payments received are treated as interest income on a cash basis as long as the remaining book value of the loan (i.e., after charge-off of all identified losses) is deemed to be fully collectible.
These five loans did not have any charge-offs or require any specific valuation allowances as of December 31, 2023. Interest payments received are treated as interest income on a cash basis as long as the remaining book value of the loan (i.e., after charge-off of all identified losses) is deemed to be fully collectible.
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 or reduce the fair value of financial instruments or reduce 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.
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, including with respect to overdraft fees; • inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues or reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses or prepayments on loans we have made 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.
Under the terms of the discontinued program, the employee interest rate is based on the Bank’s cost of funds on December 31st of the immediately preceding year and is adjusted annually.
Under the terms of the discontinued program, the employee interest rate is based on WaterStone Bank’s cost of funds on December 31st of the immediately preceding year and is adjusted annually.
The composition and maturities of the debt securities portfolio at December 31, 2022 are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. Municipal obligation yields have not been adjusted to a tax-equivalent basis.
The composition and maturities of the debt securities portfolio at December 31, 2023 are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur. Municipal obligation yields have not been adjusted to a tax-equivalent basis.
Savings banks deemed by the Federal Deposit Insurance Corporation to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator.
Savings banks deemed by the Federal Deposit Insurance Corporation to be “critically undercapitalized” generally would be subject to the appointment of a receiver or conservator.
Waterstone Financial’s executive offices are located at 11200 West Plank Court, Wauwatosa, Wisconsin 53226, and its telephone number at this address is (414) 761-1000. - 2 - Table of Contents BUSINESS OF WATERSTONE BANK General WaterStone Bank is a community bank that has served the banking needs of its customers since 1921.
Waterstone Financial’s executive offices are located at 11200 West Plank Court, Wauwatosa, Wisconsin 53226, and its telephone number at this address is (414) 761-1000. - 2 - BUSINESS OF WATERSTONE BANK General WaterStone Bank is a community bank that has served the banking needs of its customers since 1921.
Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. - 7 - Table of Contents Loan Approval Procedures and Authority .
Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. - 7 - Loan Approval Procedures and Authority .
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 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 effect of any pandemic; including COVID-19; • the effects of federal government shutdown; • the effects of any national or international war, conflict, or act of terrorism; • the ability 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 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 attract and 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 federal government shutdown; • the effects of any national or international war, conflict, or act of terrorism; • the ability of the U.S.
Any future provisions for loan losses will continue to be based upon our assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors. - 13 - Table of Contents Allocation of Allowance for Credit Losses - Loans.
Any future provisions for loan losses will continue to be based upon our assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors. - 13 - Allocation of Allowance for Credit Losses - Loans.
The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on WaterStone Bank, Waterstone Mortgage Corporation and Waterstone Financial. - 19 - Table of Contents Intrastate and Interstate Merger and Branching Activities Wisconsin Law and Regulation.
The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on WaterStone Bank, Waterstone Mortgage Corporation and Waterstone Financial. - 19 - Intrastate and Interstate Merger and Branching Activities Wisconsin Law and Regulation.
At December 31, 2022, WaterStone Bank had no reserves subject to recapture in excess of its base year. Waterstone Financial is required to use the specific charge-off method to account for tax bad debt deductions. Taxable Distributions and Recapture.
At December 31, 2023, WaterStone Bank had no reserves subject to recapture in excess of its base year. Waterstone Financial is required to use the specific charge-off method to account for tax bad debt deductions. Taxable Distributions and Recapture.
Any change in applicable laws or regulations, whether by the WDFI, the Federal Deposit Insurance Corporation, the Federal Reserve Board or Congress, could have a material adverse impact on the operations and financial performance of Waterstone Financial, WaterStone Bank and Waterstone Mortgage Corporation.
Any change in applicable laws or regulations, whether by the WDFI, the Federal Deposit Insurance Corporation, the Federal Reserve Board, Wisconsin legislature, or Congress, could have a material adverse impact on the operations and financial performance of Waterstone Financial, WaterStone Bank and Waterstone Mortgage Corporation.
Additionally, if the estimate of value is inaccurate, we may be confronted with a project, when completed, with a value that is insufficient to ensure full repayment of the loan. - 6 - Table of Contents Commercial Real Estate Loans.
Additionally, if the estimate of value is inaccurate, we may be confronted with a project, when completed, with a value that is insufficient to ensure full repayment of the loan. - 6 - Commercial Real Estate Loans.
All loans are reviewed on a regular basis, and loans are placed on non-accrual status when they become 90 or more days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is reversed, and further income is recognized only to the extent received when collection of the remaining principal balance is reasonably assured. Non-Performing Assets.
All loans are reviewed on a regular basis for payment performance, and loans are placed on non-accrual status when they become 90 or more days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is reversed, and further income is recognized only to the extent received when collection of the remaining principal balance is reasonably assured. Non-Performing Assets.
A subsidiary of a savings bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an affiliate of the savings bank for the purposes of Sections 23A and 23B; however, the Federal Deposit Insurance Corporation has the discretion to treat subsidiaries of a savings bank as affiliates on a case-by-case basis.
A subsidiary of a savings bank that is not also a depository institution or a “financial subsidiary” under federal law is generally not treated as an affiliate of the savings bank for the purposes of Sections 23A and 23B and Regulation W; however, the Federal Deposit Insurance Corporation has the discretion to treat subsidiaries of a savings bank as affiliates on a case-by-case basis.
Consistent with these requirements, the Bank offered employees special terms for home mortgage loans on their principal residences. Effective April 1, 2006, this program was discontinued for new loan originations.
Consistent with these requirements, WaterStone Bank offered employees special terms for home mortgage loans on their principal residences. Effective April 1, 2006, this program was discontinued for new loan originations.
Institutions may not pay dividends if they would be “undercapitalized” following payment of the dividend within the meaning of the prompt corrective action regulations. Information with respect to regulation regarding dividends declared and paid by Waterstone Financial is disclosed under "Holding Company Dividends." Liquidity and Reserves Wisconsin Law and Regulation.
Institutions may not pay dividends if they would be “undercapitalized” following payment of the dividend within the meaning of the prompt corrective action regulations. Information with respect to regulations and guidance governing dividends declared and paid by Waterstone Financial is disclosed under "Holding Company Dividends." Liquidity and Reserves Wisconsin Law and Regulation.
Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as is the case with Waterstone Financial, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable presumption of control under the applicable regulations under certain circumstances including where, as is the case with Waterstone Financial, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.
The Company does not have uninsured deposits less than $250,000 in aggregate balance. The following table sets forth the maturity of uninsured certificates of deposits at December 31, 2022 and 2021.
The Company does not have uninsured deposits less than $250,000 in aggregate balance. The following table sets forth the maturity of uninsured certificates of deposits at December 31, 2023 and 2022.
The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Waterstone Financial or WaterStone Bank. The Company is no longer subject to federal tax examinations for years before 2019. - 27 - Table of Contents Method of Accounting.
The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Waterstone Financial or WaterStone Bank. The Company is no longer subject to federal tax examinations for years before 2019. Method of Accounting.
We do not know of any practice, condition or violation that might lead to termination of deposit insurance. - 21 - Table of Contents Capitalization Wisconsin Law and Regulation .
We do not know of any practice, condition or violation that might lead to termination of deposit insurance. - 21 - Capitalization Wisconsin Law and Regulation .
A less than satisfactory rating may also prevent a financial institution, such as WaterStone Bank or its holding company, from obtaining necessary regulatory approvals to pay dividends, repurchase shares of common stock, acquire other financial institutions or establish new branches.
A less than satisfactory rating may also prevent a financial institution, such as WaterStone Bank or Waterstone Financial, from obtaining necessary regulatory approvals to pay dividends, repurchase shares of common stock, acquire other financial institutions or establish new branches.
We also require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable. The average outstanding multi-family mortgage loan balance was approximately $1.4 million on December 31, 2022, with the largest outstanding balance at $16.7 million.
We also require borrowers with rental investment property to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable. The average outstanding multi-family mortgage loan balance was approximately $1.5 million on December 31, 2023, with the largest outstanding balance at $16.7 million.
Control, as defined under the Change in Bank Control Act federal law, means ownership, control of or the power to vote 25% or more of any class of voting stock.
Control, as defined under the Change in Bank Control Act, means ownership, control of or the power to vote 25% or more of any class of voting stock.
Under Wisconsin law, a savings bank may not make a loan to a person owning 10% or more of its stock, an affiliated person (including a director, officer, the spouse of either and a member of the immediate family of such person who is living in the same residence), agent, or attorney of the savings bank, either individually or as an agent or partner of another, except as under the rules of the WDFI and regulations of the Federal Deposit Insurance Corporation.
Under Wisconsin law, a savings bank may not make a loan to a person owning 10% or more of its stock, an affiliated person (including a director, officer, or controlling person, the spouse of such individual, or a member of the immediate family of such person who is living in the same residence or who is a director or officer of a subsidiary of the bank or of a holding company of the bank), agent, or attorney of the savings bank, either individually or as an agent or partner of another, except as under the rules of the WDFI and regulations of the Federal Deposit Insurance Corporation.
Working capital lines of credit are short-term loans of 12 months or less with variable interest rates. At December 31, 2022, the unadvanced portion of working capital lines of credit totaled $17.4 million. Outstanding balances fluctuate up to the maximum commitment amount based on fluctuations in the balance of the underlying collateral.
Working capital lines of credit are short-term loans of 12 months or less with variable interest rates. At December 31, 2023, the unadvanced portion of working capital lines of credit totaled $15.4 million. Outstanding balances fluctuate up to the maximum commitment amount based on fluctuations in the balance of the underlying collateral.
The Company had no deposits obtained directly from brokers as of December 31, 2022 and December 31, 2021. - 17 - Table of Contents The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
The Company had no deposits obtained directly from brokers as of December 31, 2023 and December 31, 2022. - 17 - The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.
On a consolidated basis, Waterstone Mortgage Corporation originated $2.76 billion in mortgage loans held for sale during the year ended December 31, 2022, which excludes the loans originated from Waterstone Mortgage Corporation and purchased by WaterStone Bank. Subsidiary Activities Waterstone Financial currently has one wholly-owned subsidiary, WaterStone Bank, which in turn has three wholly-owned subsidiaries.
On a consolidated basis, Waterstone Mortgage Corporation originated $2.02 billion in mortgage loans held for sale during the year ended December 31, 2023, which excludes the loans originated from Waterstone Mortgage Corporation and purchased by WaterStone Bank. Subsidiary Activities Waterstone Financial currently has one wholly-owned subsidiary, WaterStone Bank, which in turn has three wholly-owned subsidiaries.
Management believes it has established an adequate allowance for probable loan losses as appropriate under generally accepted accounting principles. Real Estate Owned. Total real estate owned was $145,000 at December 31, 2022, and $148,000 at December 31, 2021. During the year ended December 31, 2022 and December 31, 2021, there was no significant activity.
Management believes it has established an adequate allowance for probable loan losses as appropriate under generally accepted accounting principles. Real Estate Owned. Total real estate owned was $254,000 at December 31, 2023, and $145,000 at December 31, 2022. During the year ended December 31, 2023 and December 31, 2022, there was no significant activity.
The Federal Reserve Board took that action due to a change in its approach to monetary policy; it has indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant. - 23 - Table of Contents Transactions with Affiliates and Insiders Wisconsin Law and Regulation .
The Federal Reserve Board took that action due to a change in its approach to monetary policy; it has indicated that it currently has no plans to re-impose reserve requirements but could in the future if conditions warrant. - 23 - Transactions with Affiliates and Insiders Wisconsin Law and Regulation .
Our adjustable-rate mortgage loans typically amortize over terms of up to 30 years, and are indexed to either the 12-month SOFR rate or the 12-month LIBOR. Single family adjustable rate mortgage loans are originated at both our community banking segment and our mortgage banking segment.
Our adjustable-rate mortgage loans typically amortize over terms of up to 30 years, and are indexed to the 12-month SOFR rate. Single family adjustable rate mortgage loans are originated at both our community banking segment and our mortgage banking segment.
At December 31, 2022, WaterStone Bank was not servicing any loan it originated and subsequently sold to unrelated third parties.
At December 31, 2023, WaterStone Bank was not servicing any loan it originated and subsequently sold to unrelated third parties.
Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors.
Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings, sensitivity to market risk, and other factors.
At December 31, 2022, our Government sponsored enterprise bond portfolio totaled $2.3 million, all of which were issued by Federal National Mortgage Association ("Fannie Mae") and were classified as available for sale. The weighted average yield on these securities was 0.60% and the weighted average remaining average life was 2.6 years at December 31, 2022.
At December 31, 2023, our Government sponsored enterprise bond portfolio totaled $2.3 million, all of which were issued by Federal National Mortgage Association ("Fannie Mae") and were classified as available for sale. The weighted average yield on these securities was 0.60% and the weighted average remaining average life was 1.7 years at December 31, 2023.
A total of 172 are WaterStone Bank employees and 570 are employees of Waterstone Mortgage Corporation. We believe we are able to attract and retain top talent by creating a culture that challenges and engages our employees, offering them opportunities to learn, grow and achieve their career goals.
A total of 182 are WaterStone Bank employees and 516 are employees of Waterstone Mortgage Corporation. We believe we are able to attract and retain top talent by creating a culture that challenges and engages our employees, offering them opportunities to learn, grow and achieve their career goals.
In addition, any company that owns or controls, directly or indirectly, more than 25% of the voting securities of a state savings bank is subject to regulation as a savings bank holding company by the WDFI. Waterstone Financial is subject to regulation as a savings bank holding company under Wisconsin law.
In addition, any company that directly or indirectly owns, controls, or holds with power to vote, more than 25% of the voting securities of a state savings bank is subject to regulation as a savings bank holding company by the WDFI. Waterstone Financial is subject to regulation as a savings bank holding company under Wisconsin law.
WaterStone Bank also has an active mortgage banking subsidiary, Waterstone Mortgage Corporation, which had 78 offices in 26 states as of December 31, 2022. WaterStone Bank conducts its community banking business from 14 banking offices located in Milwaukee, Washington and Waukesha counties, Wisconsin.
WaterStone Bank also has an active mortgage banking subsidiary, Waterstone Mortgage Corporation, which had 72 offices in 26 states as of December 31, 2023. WaterStone Bank conducts its community banking business from 14 banking offices located in Milwaukee, Washington and Waukesha counties, Wisconsin.
The Federal Deposit Insurance Corporation has the authority to establish higher capital requirements for individual institutions where deemed necessary due to a determination that an institution’s capital level is, or is likely to become, inadequate in light of particular circumstances.
The Federal Deposit Insurance Corporation has the authority to establish higher capital requirements for individual institutions where deemed necessary due to a determination that an institution’s capital levels are, or are likely to become, inadequate in light of particular circumstances.
Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are no less stringent than, those that are prevailing at the time for comparable transactions with other persons and must not present more than a normal risk of collectability.
Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are no less stringent than, those that are prevailing at the time for comparable transactions with other persons and must not present more than a normal risk of repayment or present other unfavorable features.
While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes and prepayment protection. The estimated fair value of our government sponsored enterprise bond portfolio at December 31, 2022 was $244,000 less than the amortized cost of $2.5 million. Municipal Obligations.
While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes and prepayment protection. The estimated fair value of our government sponsored enterprise bond portfolio at December 31, 2023 was $152,000 less than the amortized cost of $2.5 million.
In addition, unless the prior approval of the WDFI is obtained, a savings bank may not purchase, lease or acquire a site for an office building or an interest in real estate from an affiliated person, including a shareholder owning more than 10% of its capital stock, or from any firm, corporation, entity or family in which an affiliated person or 10% shareholder has a direct or indirect interest.
In addition, unless the prior approval of the WDFI is obtained, a savings bank may not purchase, lease or acquire a site for an office building or an interest in real estate from an officer, director, employee, or a shareholder owning more than 10% of its capital stock, or from any firm, corporation, entity or family in which an officer, director, employee or 10% shareholder has a direct or indirect interest.
Offsetting this activity, $3.3 million in loans were placed on non-accrual status during the year ended December 31, 2022. Of the $4.3 million in total non-accrual loans as of December 31, 2022, $2.6 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.
Offsetting this activity, $3.2 million in loans were placed on non-accrual status during the year ended December 31, 2023. Of the $4.8 million in total non-accrual loans as of December 31, 2023, $2.5 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary.
Sections 23A and 23B limit the extent to which a savings bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such savings bank’s capital stock and surplus, and limit all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus.
Section 23A and Regulation W limit the extent to which a savings bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such savings bank’s capital stock and surplus, and limit all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus.
A Wisconsin savings bank that fails to meet this qualified thrift lender test becomes subject to certain operating restrictions otherwise applicable only to commercial banks. At December 31, 2022, WaterStone Bank maintained 84.2% of its assets in qualified thrift investments and therefore met the qualified thrift lender requirement. Federal Law and Regulation .
A Wisconsin savings bank that fails to meet this qualified thrift lender test becomes subject to certain operating restrictions otherwise applicable only to commercial banks. At December 31, 2023, WaterStone Bank maintained 88.1% of its assets in qualified thrift investments and therefore met the qualified thrift lender requirement. Federal Law and Regulation .
These laws, regulations and judicial and administrative decisions to which Waterstone Mortgage Corporation is subject include those pertaining to: real estate settlement procedures; fair lending; fair credit reporting; truth in lending; compliance with net worth and financial statement delivery requirements; compliance with federal and state disclosure and licensing requirements; the establishment of maximum interest rates, finance charges and other charges; secured transactions; collection, foreclosure, repossession and claims-handling procedures; other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers; and guidance on non-traditional mortgage loans issued by the federal financial regulatory agencies.
These laws, regulations and judicial and administrative decisions to which Waterstone Mortgage Corporation is subject include those pertaining to: real estate settlement procedures; fair lending; fair credit reporting; truth in lending; compliance with net worth and financial statement delivery requirements; compliance with federal and state disclosure and licensing requirements; the establishment of maximum interest rates, finance charges and other charges; secured transactions; collection, foreclosure, repossession and claims-handling procedures; other trade practices and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers; and guidance on non-traditional mortgage loans issued by the federal financial regulatory agencies. - 25 - Holding Company Regulation Waterstone Financial is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board.
Higher than anticipated rates of loan default would likely result in a need to increase provisions in future years. At December 31, 2022, the allowance for credit losses - loans was $17.8 million, compared to $15.8 million at December 31, 2021.
Higher than anticipated rates of loan default would likely result in a need to increase provisions in future years. At December 31, 2023, the allowance for credit losses - loans was $18.5 million, compared to $17.8 million at December 31, 2022.
The borrower represented a total of 2.9% of the total loan portfolio as of December 31, 2022. Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the total portfolio at the dates indicated.
The borrower represented a total of 2.6% of the total loan portfolio as of December 31, 2023. Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the total portfolio at the dates indicated.
Upon determining the updated estimated value of the collateral, a loan loss provision is recorded to establish a specific reserve to the extent that the outstanding principal balance exceeds the updated estimated net realizable value of the collateral.
Upon determining the updated estimated value of the collateral, a loan loss provision is recorded to establish a specific reserve to the extent that the outstanding principal balance exceeds the updated estimated net realizable value of the collateral, which includes estimated costs of selling.
Mortgage-backed securities, collateralized mortgage obligations, and private-label mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees, if any, and credit enhancements. These fixed-rate securities are usually more liquid than individual mortgage loans. At December 31, 2022, mortgage-backed securities totaled $13.3 million.
Mortgage-backed securities, collateralized mortgage obligations, and private-label mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees, if any, and credit enhancements. These fixed-rate securities are usually more liquid than individual mortgage loans. At December 31, 2023, mortgage-backed securities totaled $11.2 million.
During the years ended December 31, 2022, 2021, and 2020, no investment securities were sold. - 15 - Table of Contents Available for Sale Portfolio Mortgage-backed Securities and Collateralized Mortgage Obligations. We purchase mortgage-backed securities and collateralized mortgage obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
During the years ended December 31, 2023, 2022, and 2021, no investment securities were sold. - 15 - Available for Sale Portfolio Mortgage-backed Securities and Collateralized Mortgage Obligations. We purchase mortgage-backed securities and collateralized mortgage obligations guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
WaterStone Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $250,000. The Federal Deposit Insurance Corporation imposes an assessment against all insured depository institutions.
WaterStone Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. WaterStone Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $250,000 per depositor per account ownership category. The Federal Deposit Insurance Corporation imposes an assessment against all insured depository institutions.
We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amounts of potential problem loans as of December 31, 2022 and 2021 were $5.5 million and $7.9 million, respectively.
We do not necessarily expect to realize losses on potential problem loans, but we recognize potential problem loans carry a higher probability of default and require additional attention by management. The aggregate principal amounts of potential problem loans as of December 31, 2023 and 2022 were $6.8 million and $5.5 million, respectively.
In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations.
In addition, we must comply with significant anti-money laundering and anti-terrorist financing laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

35 edited+28 added−12 removed118 unchanged
Biggest changeAs inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.
Biggest changeInflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.
The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic. The Federal Reserve Board has reversed its policy of near zero interest rates given its concerns over inflation. Market interest rates have risen in response to the Federal Reserve Board’s recent rate increases.
The Federal Reserve Board decreased benchmark interest rates to near zero in response to the COVID-19 pandemic. The Federal Reserve Board has reversed its policy of near zero interest rates given its concerns over inflation. Market interest rates have risen significantly in response to the Federal Reserve Board’s recent rate increases.
The impact on our customers will likely vary depending on their specific attributes, including reliance on role in carbon intensive activities. among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.
The impact on our customers will likely vary depending on their specific attributes, including reliance on and role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.
These changes are beyond our control, can be hard to predict and could materially affect how we report our financial condition and results of operations. We could also be required to apply a new or revised standard retroactively, which may result in our restating our prior period financial statements.
These changes are beyond our control, can be hard to predict and could materially affect how we report our consolidated financial condition and consolidated results of operations. We could also be required to apply a new or revised standard retroactively, which may result in our restating our prior period consolidated financial statements.
Their use also affects interest rates charged on loans or paid on deposits. We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.
Their use also affects interest rates charged on loans or paid on deposits. - 28 - We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.
From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements.
From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our consolidated financial statements.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. - 35 - Table of Contents Acquisitions may disrupt our business and dilute stockholder value. We regularly evaluate merger and acquisition opportunities with other financial institutions and financial services companies.
New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. - 35 - Acquisitions may disrupt our business and dilute stockholder value. We regularly evaluate merger and acquisition opportunities with other financial institutions and financial services companies.
While the higher payment amounts we would receive on these loans in a rising interest rate environment may increase our interest income, some borrowers may be unable to afford the higher payment amounts, which may result in a higher rate of loan delinquencies and defaults, as well as lower loan originations, as borrowers who may qualify for a loan based on certain mortgage repayments, may not be able to afford repayments based on higher interest rates for the same loan amounts.
While the higher payment amounts we would receive on these loans in a rising interest rate environment has increased our interest income, some borrowers may be unable to afford the higher payment amounts, which may result in a higher rate of loan delinquencies and defaults, as well as lower loan originations, as borrowers who may qualify for a loan based on certain mortgage repayments, may not be able to afford repayments based on higher interest rates for the same loan amounts.
Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks. - 32 - Table of Contents Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks. - 32 - Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
Thus, any borrowing or funds needed to raise capital required to make a capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations. - 29 - Table of Contents Risks Related to Interest Rates The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability.
Thus, any borrowing or funds needed to raise capital required to make a capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations. Risks Related to Interest Rates The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability.
Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. - 34 - Table of Contents Other Risks Related to Our Business Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.
Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. - 34 - Other Risks Related to Our Business Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.
If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could increase our costs and thereby affect our future earnings. - 33 - Table of Contents Risks Related to Environmental and Other Global Matters Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.
If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could increase our costs and thereby affect our future earnings. - 33 - Risks Related to Environmental and Other Global Matters Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.
Our securities portfolio may be impacted by fluctuations in fair value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in fair value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a monthly basis, with more frequent evaluation for selected issues.
Our securities portfolio may be impacted by fluctuations in fair value, potentially reducing accumulated other comprehensive income (loss) and/or earnings. Fluctuations in fair value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for credit impairment on a monthly basis, with more frequent evaluation for selected issues.
As discussed below, the increase in market interest rates is expected to have an adverse effect on our net interest income and profitability. Changing interest rates may have a negative effect on our results of operations. Our earnings and cash flows are dependent on our net interest income and income from our mortgage banking operations.
As discussed below, the increase in market interest rates has already had and is expected to further have an adverse effect on our net interest income and profitability. Changing interest rates may have a negative effect on our results of operations. Our earnings and cash flows are dependent on our net interest income and income from our mortgage banking operations.
In particular, a significant decline in real estate values would likely lead to a decrease in new loan originations and increased delinquencies and defaults by our borrowers, as well as increases in our allowance for loan losses. - 30 - Table of Contents Inflation can have an adverse impact on our business and on our customers.
In particular, a significant decline in real estate values would likely lead to a decrease in new loan originations and increased delinquencies and defaults by our borrowers, as well as increases in our allowance for credit losses. Inflation can have an adverse impact on our business and on our customers.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations. A lack of liquidity could adversely affect our financial condition and results of operations. Liquidity is essential to our business.
Economic conditions have an impact, to some extent, on our overall performance. Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.
Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources.
In addition, we will continue to make investments in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources.
Our funding sources may prove insufficient to replace deposits at maturity and support our future growth. We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.
We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.
Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2022, the fair value of our investment portfolio totaled $196.6 million. Net unrealized losses on these securities totaled $26.1 million at December 31, 2022.
Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2023, the fair value of our investment portfolio totaled $204.9 million. Net unrealized losses on these securities totaled $22.8 million at December 31, 2022.
Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.
Our accounting policies are essential to understanding our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.
During the year ended December 31, 2022, we incurred other comprehensive losses of $18.3 million, net of tax benefit, related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. Increases in interest rates can also have an adverse impact on our results of operations. A portion of our loans have adjustable interest rates.
During the year ended December 31, 2023, we incurred other comprehensive gains of $1.7 million, net of tax expense, related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio. Increases in interest rates can also have an adverse impact on our results of operations, as has happened in recent periods.
Risks Related to Lending Matters We intend to increase our commercial business lending, and we intend to continue our commercial real estate and multi-family residential real estate lending, which may expose us to increased lending risks and have a negative effect on our results of operations.
If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations. - 30 - Risks Related to Lending Matters We intend to increase our commercial business lending, and we intend to continue our commercial real estate and multi-family residential real estate lending, which may expose us to increased lending risks and have a negative effect on our results of operations.
In a rising or higher interest rate environment, our mortgage loan originations may decrease, resulting in fewer loans that are available for sale. This would result in a decrease in interest income and a decrease in revenues from loan sales.
We also earn interest on loans held for sale while awaiting delivery to our investors. In this rising and higher interest rate environment, our mortgage loan originations have decreased, resulting in fewer loans that are available for sale. This resulted in a decrease in interest income and a decrease in revenues from loan sales.
We generate revenues primarily from gains on the sale of mortgage loans to investors, and from the amortization of deferred mortgage servicing rights. We had mortgage banking income decrease $91.5 million during the year ended December 31, 2022. We also earn interest on loans held for sale while awaiting delivery to our investors.
Any increase in market interest rates may further reduce our mortgage banking income. We generate revenues primarily from gains on the sale of mortgage loans to investors, and from the amortization of deferred mortgage servicing rights. We had mortgage banking income decrease of $23.9 million during the year ended December 31, 2023.
Risks Related to Operational Matters We rely heavily on certificates of deposit, which has increased our cost of funds and could continue to do so in the future.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us. - 31 - Risks Related to Operational Matters We rely heavily on certificates of deposit, which has increased our cost of funds and could continue to do so in the future.
See “Management’s Discussion and Analysis of Financial Condition" and "Quantitative and Qualitative Disclosures About Market Risk—Management of Market Risk.” Risks Related to Economic Matters Changes in economic conditions could adversely affect our earnings, as our borrowers ’ ability to repay loans and the value of the collateral securing our loans decline.
Risks Related to Economic Matters Changes in economic conditions could adversely affect our earnings, as our borrowers ’ ability to repay loans and the value of the collateral securing our loans decline. Economic conditions have an impact, to some extent, on our overall performance.
Risks Related to Accounting Matters Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations. Our accounting policies are essential to understanding our financial condition and results of operations.
Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value. Risks Related to Accounting Matters Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.
A shareholder may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock.
A shareholder may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock. Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on our operations, earnings and financial condition.
This system of regulation is designed primarily for the protection of the Deposit Insurance Fund and our depositors, and not for the benefit of our stockholders.
As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities, and obtain financing. This system of regulation is designed primarily for the protection of the Deposit Insurance Fund and our depositors, and not for the benefit of our stockholders.
Furthermore, in a period of rising interest rates, the interest income earned on interest-earning assets may not increase as rapidly as the interest paid on interest-bearing liabilities, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Any increase in market interest rates may reduce our mortgage banking income.
The marketability of the underlying collateral also may be adversely affected in a high interest rate environment. Furthermore, the interest income earned on interest-earning assets has not increased as rapidly as the interest paid on interest-bearing liabilities, which has compressed our interest rate spread and had a negative effect on our profitability.
New lines of business or new products and services may subject us to additional risks. From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In addition, we will continue to make investments in research, development, and marketing for new products and services.
The declines in fair value could result in a material adverse effect on our capital levels. New lines of business or new products and services may subject us to additional risks. From time to time, we may implement new lines of business or offer new products and services within existing lines of business.
The value or market price of our securities could decline due to any of these identified or other risks.
The value or market price of our securities could decline due to any of these identified or other risks. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. - 28 - Table of Contents Risks Related to Regulatory Matters We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank regulatory agencies.
Risks Related to Regulatory Matters We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank regulatory agencies. We are subject to extensive supervision, regulation, and examination by the WDFI, the Federal Deposit Insurance Corporation and the Federal Reserve Board.
Our methodologies revert back to historical loss information on a straight-line basis over one year when it can no longer develop reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis.
Loans that do not share risk characteristics are evaluated on an individual basis.
Removed
We are subject to extensive supervision, regulation, and examination by the WDFI, the Federal Deposit Insurance Corporation and the Federal Reserve Board. As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities, and obtain financing.
Added
A portion of our loans have adjustable interest rates.
Removed
The marketability of the underlying collateral also may be adversely affected in a high interest rate environment.
Added
In addition, as a result of rising interest rates, we have experienced a shift in deposits from lower-cost (savings, NOW, and money market) accounts to higher-cost certificates of deposit.
Removed
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Over the past year, in response to a pronounced rise in inflation, the Federal Reserve Board has raised certain benchmark interest rates to combat inflation.
Added
However, the rates we earn on our loans did not increase as rapidly during the year ended December 31, 2023, as we have a significant amount of fixed-rate residential real estate loans where the interest rates did not increase commensurate with the increase in market interest rates.
Removed
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us. - 31 - Table of Contents The foreclosure process may adversely impact our recoveries on non-performing loans The judicial foreclosure process is protracted, which delays our ability to resolve non-performing loans through the sale of the underlying collateral.
Added
See “Management’s Discussion and Analysis of Financial Condition" and "Quantitative and Qualitative Disclosures About Market Risk—Management of Market Risk.” - 29 - Hedging against interest rate exposure may adversely affect our earnings On occasion we have employed various financial risk methodologies that limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities.
Removed
The longer timelines have been the result of the economic crisis, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.
Added
We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions.
Removed
These reasons and the legal and regulatory responses have impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders. This may result in a material adverse effect on collateral values and our ability to minimize its losses.
Added
There are no perfect hedging strategies, and interest rate hedging may fail to protect us from loss. Moreover, hedging activities could result in losses if the event against which we hedge does not occur.
Removed
Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value.
Added
Additionally, interest rate hedging could fail to protect us or adversely affect us because, among other things: ● available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability; ● the party owing money in the hedging transaction may default on its obligation to pay; ● the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; ● the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value; and/or ● downward adjustments, or “mark-to-market” losses, would reduce our stockholders’ equity.
Removed
Risks Related to the COVID-19 Pandemic The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
Added
In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.
Removed
Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have continued to affect the macroeconomic environment, both nationally and in the Company’s existing geographic footprint. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.
Added
Our stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.
Removed
The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be fully controlled and abated.
Added
Further, if we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, which have come under greater scrutiny in light of recent bank failures, it may have a material adverse effect on our financial condition and results of operations.
Removed
The COVID-19 pandemic and the related adverse local and national economic consequences could result in a material, adverse effect on our business, financial condition, liquidity, and results of operations, and if these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways.
Added
On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation.
Removed
The declines in fair value could result in a material adverse effect on our capital levels. During the year ended December 31, 2022, we incurred other comprehensive losses of $18.3 million, net of tax benefit, related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.
Added
On March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation.
Added
These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.
Added
These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.
Added
Our board of directors relies to a large degree on management and outside consultants in overseeing cybersecurity risk management. The Bank has an Information Technology Committee, consisting of the President, Chief Retail Officer, Chief Information Officer, Chief Financial Officer and staff from other departments within our organization.
Added
The committee meets quarterly, or more frequently if needed, and reports to the board of directors after each meeting through committee minutes. We also engage outside consultants to support its cybersecurity efforts.
Added
Our directors do not have significant experience in cybersecurity risk management in other business entities comparable to the Bank and rely on the President and Chief Information Officer for cybersecurity guidance. Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.
Added
We rely on our ability to generate deposits and effectively manage the repayment of our liabilities to ensure that there is adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity.
Added
Our most important source of funds is our deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments.
Added
Further, the demand for deposits may be reduced due to a variety of factors such as negative trends in the banking sector, the level of and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the FRB or regulatory actions that decrease customer access to particular products.
Added
If customers move money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, which would increase our funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity.
Added
Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and/or loans, brokered deposits, borrowings from the FHLB and/or FRB discount window, and unsecured borrowings. We also may borrow funds from third-party lenders, such as other financial institutions.
Added
Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of our business activity as a result of a downturn in markets or by one or more adverse regulatory actions against us or the financial sector in general.
Added
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Added
A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived creditworthiness of U.S. government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affect the pricing of that funding when it is available.
Added
A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse impact on us.
Added
Among other things, a downgrade in the U.S. government’s credit rating could adversely impact the value of our securities portfolio and may trigger requirements that we post additional collateral for trades relative to these securities.
Added
A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse effects on the business, financial condition and results of operations.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed1 unchanged
Biggest changeWaukesha, Wisconsin 53186 West Allis/Greenfield Avenue 10101 West Greenfield Avenue West Allis, Wisconsin 53214 Fox Point/North Shore 8607 North Port Washington Road Fox Point, Wisconsin 53217 Greenfield/Loomis Road 5000 West Loomis Road Greenfield, Wisconsin 53220 West Allis/National Avenue 10296 West National Avenue West Allis, Wisconsin 53227 Oak Creek/Howell Avenue 8780 South Howell Avenue Oak Creek, Wisconsin 53154 Milwaukee/Oklahoma Avenue 6801 West Oklahoma Avenue Milwaukee, WI 53219 (1) Leased property In addition to our banking offices, as of December 31, 2022, Waterstone Mortgage Corporation had 13 offices in Florida, nine offices in New Mexico, seven offices in each of Virginia and Wisconsin, five offices in Texas, four offices in Maryland, three offices in each of Arizona, Illinois, Oklahoma, and Pennsylvania, two offices in each of Colorado, Michigan, New Hampshire, South Carolina, and Tennessee, and one office in each of Delaware, Idaho, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, New Jersey, North Dakota, and Rhode Island.
Biggest changeWaukesha, Wisconsin 53186 West Allis/Greenfield Avenue 10101 West Greenfield Avenue West Allis, Wisconsin 53214 Fox Point/North Shore 8607 North Port Washington Road Fox Point, Wisconsin 53217 Greenfield/Loomis Road 5000 West Loomis Road Greenfield, Wisconsin 53220 West Allis/National Avenue 10296 West National Avenue West Allis, Wisconsin 53227 Oak Creek/Howell Avenue 8780 South Howell Avenue Oak Creek, Wisconsin 53154 Milwaukee/Oklahoma Avenue 6801 West Oklahoma Avenue Milwaukee, Wisconsin 53219 (1) Leased property In addition to our banking offices, as of December 31, 2023, Waterstone Mortgage Corporation had 15 offices in Florida, nine offices in New Mexico, four offices in each of Arizona, Virginia, and Wisconsin, three offices in each of California, Maryland, New Hampshire, Oklahoma, and Texas two offices in each of Delaware, Idaho, Kansas, Minnesota, and South Carolina, and one office in each of Colorado, Connecticut, Iowa, Illinois, Kentucky, Massachusetts, Michigan, Missouri, New Jersey, Rhode Island, and Tennessee.
The following table sets forth information with respect to our corporate center and our full-service banking offices as of December 31, 2022. Corporate Center 11200 West Plank Court Wauwatosa, Wisconsin 53226 Wauwatosa 7500 West State Street Wauwatosa, Wisconsin 53213 Brookfield (1) 17495 W Capitol Dr.
The following table sets forth information with respect to our corporate center and our full-service banking offices as of December 31, 2023. Corporate Center 11200 West Plank Court Wauwatosa, Wisconsin 53226 Wauwatosa 7500 West State Street Wauwatosa, Wisconsin 53213 Brookfield (1) 17495 W Capitol Dr.
Item 2. Properties We operate from our corporate center, our 14 full-service banking offices, our drive-through office and 14 automated teller machines, located in Milwaukee, Washington and Waukesha Counties, Wisconsin. The net book value of our premises, land, equipment and leasehold improvements was $21.1 million at December 31, 2022.
Item 2. Properties We operate from our corporate center, our 14 full-service banking offices, our drive-through office and 14 automated teller machines, located in Milwaukee, Washington and Waukesha Counties, Wisconsin. The net book value of our premises, land, equipment and leasehold improvements was $20.0 million at December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under the Plan (a) October 1, 2022 - October 31, 2022 133,200 $ 16.56 133,200 792,018 November 1, 2022 - November 30, 2022 24,086 16.40 24,086 767,932 December 1, 2022 - December 31, 2022 1,960 16.52 1,960 765,972 Total 159,246 $ 16.53 159,246 765,972 (a) On December 10, 2021, the Board of Directors announced the termination of the then-existing stock repurchase plan and authorized the repurchase of 3,500,000 shares of common stock pursuant to a new share repurchase plan.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share (b) Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number of Shares that May Yet Be Purchased Under the Plan (a) October 1, 2023 - October 31, 2023 283,078 $ 10.56 283,078 1,082,117 November 1, 2023 - November 30, 2023 175,700 11.82 175,700 906,417 December 1, 2023 - December 31, 2023 86,085 13.01 86,085 820,332 Total 544,863 $ 11.36 544,863 820,332 (a) On May 24, 2023, the Board of Directors announced the termination of the then-existing stock repurchase plan and authorized the repurchase of 2,000,000 shares of common stock pursuant to a new share repurchase plan.
The graph assumes $100 was invested on December 31, 2017, in Waterstone Financial, Inc. common stock and each of those indices. Waterstone Financial, Inc.
The graph assumes $100 was invested on December 31, 2018, in Waterstone Financial, Inc. common stock and each of those indices. Waterstone Financial, Inc.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchase of Equity Securities Our shares of common stock are traded on the NASDAQ Global Select Market® under the symbol WSBF. The approximate number of shareholders of record of Waterstone common stock as of February 25, 2022 was 1,400.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchase of Equity Securities Our shares of common stock are traded on the NASDAQ Global Select Market® under the symbol WSBF. The approximate number of shareholders of record of Waterstone common stock as of February 29, 2024 was 1,200.
On that same date there were 24,230,968 shares of common stock issued and outstanding. Following are the Company's monthly common stock repurchases during the fourth quarter of 2022.
On that same date there were 20,052,831 shares of common stock issued and outstanding. Following are the Company's monthly common stock repurchases during the fourth quarter of 2023.
This plan has no expiration date. - 38 - Table of Contents PERFORMANCE GRAPH Set forth below is a line graph comparing the cumulative total shareholder return on Waterstone Financial common stock, based on the market price of the common stock and assuming reinvestment of cash dividends, with the cumulative total return of companies on the SNL Thrift NASDAQ Index and the Russell 2000.
(b) Includes 1% excise tax for repurchases greater than $1.0 million - 39 - PERFORMANCE GRAPH Set forth below is a line graph comparing the cumulative total shareholder return on Waterstone Financial common stock, based on the market price of the common stock and assuming reinvestment of cash dividends, with the cumulative total return of companies on the SNL Thrift NASDAQ Index and the Russell 2000.
Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Waterstone Financial, Inc. 100.00 104.01 125.22 134.29 166.41 140.19 S&P Composite 1500 Thrifts & Mortgage Finance Index 100.00 81.15 110.27 104.12 128.42 106.34 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 Item 6 . [Reserved]
Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Waterstone Financial, Inc. 100.00 120.39 129.11 160.00 134.79 117.13 S&P Composite 1500 Thrifts & Mortgage Finance Index 100.00 136.13 122.09 168.88 132.75 131.57 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 Item 6 . [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

89 edited+16 added−18 removed50 unchanged
Biggest changeYears 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 % (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.
Biggest changeYears Ended December 31, 2023 2022 2021 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) $ 1,752,806 90,148 5.14 % $ 1,467,306 62,935 4.29 % $ 1,600,115 64,366 4.02 % Mortgage related securities (2) 172,318 4,053 2.35 % 162,584 3,241 1.99 % 103,324 1,954 1.89 % Debt securities, federal funds sold and short-term investments (2)(3) 119,650 5,201 4.35 % 269,171 4,271 1.59 % 366,949 3,827 1.04 % Total interest-earning assets 2,044,774 99,402 4.86 % 1,899,061 70,447 3.71 % 2,070,388 70,147 3.39 % Noninterest-earning assets 106,532 120,744 142,040 Total assets $ 2,151,306 $ 2,019,805 $ 2,212,428 Liabilities and equity Interest-bearing liabilities: Demand accounts $ 80,143 82 0.10 % 72,751 61 0.08 % 64,653 50 0.08 % Money market and savings accounts 309,119 4,529 1.47 % 391,170 1,201 0.31 % 363,930 904 0.25 % Certificates of deposit 700,034 21,127 3.02 % 602,332 3,601 0.60 % 675,495 3,466 0.51 % Total interest-bearing deposits 1,089,296 25,738 2.36 % 1,066,253 4,863 0.46 % 1,104,078 4,420 0.40 % Borrowings 532,248 23,255 4.37 % 348,482 8,428 2.42 % 479,262 9,948 2.08 % Total interest-bearing liabilities 1,621,544 48,993 3.02 % 1,414,735 13,291 0.94 % 1,583,340 14,368 0.91 % Noninterest-bearing liabilities Non interest-bearing deposits 120,321 159,495 146,767 Other noninterest-bearing liabilities 51,439 48,500 50,140 Total noninterest-bearing liabilities 171,760 207,995 196,907 Total liabilities 1,793,304 1,622,730 1,780,247 Equity 358,002 397,075 432,181 Total liabilities and equity $ 2,151,306 $ 2,019,805 $ 2,212,428 Net interest income / Net interest rate spread (4) 50,409 1.84 % 57,156 2.77 % 55,779 2.48 % Less: taxable equivalent adjustment 194 0.01 % 202 0.01 % 264 0.01 % Net interest income, as reported 50,215 1.83 % 56,954 2.76 % 55,515 2.47 % Net interest-earning assets (5) $ 423,230 $ 484,326 $ 487,048 Net interest margin (6) 2.46 % 3.00 % 2.68 % Tax equivalent effect 0.01 % 0.01 % 0.01 % Net interest margin on a fully tax equivalent basis 2.47 % 3.01 % 2.69 % Average interest-earning assets to average interest-bearing liabilities 126.10 % 134.23 % 130.76 % (1) Includes net deferred loan fee amortization income of $643,000, $684,000 and $2.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
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.
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.
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.
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.
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.
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.
(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, 2022, 2021, and 2020.
(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, 2023, 2022, and 2021.
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.
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, 2023, Waterstone Financial, Inc. and WaterStone Bank exceeded all regulatory capital requirements and are considered “well capitalized” under regulatory guidelines.
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.
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, 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 2022 Form 10-K, filed with the SEC on February 28, 2023.
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.
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, 2023, compared the year ended December 31, 2022, which focuses on noninterest income and noninterest expenses.
(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.
(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, 2023, 2022, and 2021.
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. - 42 - Table of Contents 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.
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. - 43 - 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.
See Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements describes the methodology used to determine the ACL. - 41 - Table of Contents In addition, state and federal regulators periodically review the WaterStone Bank allowance for credit losses.
See Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements describes the methodology used to determine the ACL. - 42 - In addition, state and federal regulators periodically review the WaterStone Bank allowance for credit losses.
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.
At December 31, 2023 and 2022, $36.4 million and $46.6 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.
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.
At December 31, 2023, certificates of deposit scheduled to mature in less than one year totaled $622.4 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.
The prior year amounts presented are calculated under the prior accounting standard. - 43 - Table of Contents 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 (1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
The prior year amounts presented are calculated under the prior accounting standard. - 44 - At or for the Year Ended December 31, 2023 2022 2021 Selected Financial Ratios and Other Data: Performance Ratios: Return on average assets 0.44 % 0.96 % 3.20 % Return on average equity 2.62 4.91 16.38 Interest rate spread (1) 1.83 2.76 2.47 Net interest margin (2) 2.46 3.00 2.68 Noninterest expense to average assets 5.56 6.79 7.71 Efficiency ratio (3) 91.11 84.34 65.94 Average interest-earing assets to average interest-bearing liabilities 126.10 134.23 130.76 Dividend payout ratio (4) 148.94 146.07 43.62 Capital Ratios: Waterstone Financial, Inc.: Equity to total assets at end of period 15.54 % 18.24 % 19.53 % Average equity to average assets 16.64 19.66 19.53 Total capital to risk-weighted assets 21.50 24.36 29.01 Tier 1 capital to risk-weighted assets 20.39 23.29 27.99 Common equity tier 1 capital to risk-weighted assets 20.39 23.29 27.99 Tier 1 capital to average assets 16.77 19.45 19.29 WaterStone Bank: Total capital to risk-weighted assets 20.10 21.52 25.52 Tier 1 capital to risk-weighted assets 18.99 20.46 24.50 Common equity tier 1 capital to risk-weighted assets 18.99 20.46 24.50 Tier 1 capital to average assets 15.62 17.08 16.88 Asset Quality Ratios: Allowance for credit losses - loans as a percent of total loans (5) 1.11 % 1.18 % 1.31 % Allowance for credit losses - loans as a percent of non-performing loans (5) 385.79 412.28 283.06 Net chargeoffs (recoveries) to average outstanding loans during the period 0.01 (0.04 ) (0.07 ) Non-performing loans as a percent of total loans 0.29 0.29 0.46 Non-performing assets as a percent of total assets 0.23 0.22 0.26 Other Data: Number of full-service banking offices 14 14 14 Number of full-time equivalent employees 698 742 870 (1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
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. - 39 - Table of Contents As described in the notes to consolidated financial statements, we have two reportable segments: community banking and mortgage banking.
The detailed discussion in the sections below focuses on the results of operations for the year ended December 31, 2023, compared to the year ended December 2022, and the financial condition as of December 31, 2023 compared to the financial condition as of December 31, 2022. - 40 - As described in the notes to consolidated financial statements, we have two reportable segments: community banking and mortgage banking.
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 percentage of origination volume related to purchase activity increased to 96.0% from 89.1% of total originations for the year ended December 31, 2023 and 2022, respectively, as refinance demand decelerated due to an increase in interest rates over the past year.
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.
The yields on debt securities, federal funds sold and short-term investments before tax-equivalent adjustments were 4.18%, 1.51%, and 0.97% for the years ended December 31, 2023, 2022, and 2021, respectively.
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.
During the year ended December 31, 2023, 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.
Significant Items There were no Significant Items for the years ended December 31, 2022 and 2021. - 40 - Table of Contents Critical Accounting Policies Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry.
Significant Items There were no Significant Items for the years ended December 31, 2023 and 2022. - 41 - Critical Accounting Policies Our consolidated financial statements are prepared in accordance with GAAP and follow general practices within the banking industry.
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.
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, increases in the values of securities available for sale, 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 Company's Board of Directors authorized a 2,000,000 share stock repurchase program in the second quarter of 2023. As of December 31, 2023, the Company had repurchased 15.9 million shares at an average price of $15.04 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.
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.
Comparison of Community Banking Segment Operations for the Years Ended December 31, 2023 and 2022 Net income from our community banking segment for the year ended December 31, 2023 totaled $18.6 million compared to $22.8 million for the year ended December 31, 2022.
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.
Loans receivable held for investment increased $154.0 million, or 10.2%, to $1.66 billion at December 31, 2023 from $1.51 billion at December 31, 2022. The increase in total loans receivable was attributable to increases in each of the one- to four-family, multi-family, commercial, and commercial real estate loan categories. Allowance for Credit Losses.
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.
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 $26.4 million, or 7.1%, to $344.1 million at December 31, 2023 from $370.5 million at December 31, 2022.
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.
The decrease in mortgage banking noninterest income was related to a 23.2% decrease in volume and a 2.6% decrease in gross margin on loans originated and sold for the year ended December 31, 2023 compared to December 31, 2022.
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.
Income tax expense was recognized during the year ended December 31, 2023 at an effective rate of 15.0% compared to an effective rate of 20.4% during the year ended December 31, 2022.
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.
The mix of loan type trended towards more governmental loans and less conventional loans, with governmental loans and conventional loans comprising 41.0% and 59.0%, respectively of all loan originations, respectively, during the year ended December 31, 2023, compared to 29.3% and 70.7% of all originations, respectively, during the year ended December 31, 2022.
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.
Comparison of Mortgage Banking Segment Operations for the Years Ended December 31, 2023 and 2022 Net loss totaled $9.6 million for the year ended December 31, 2023 compared to net loss of $3.4 million for the year ended December 31, 2022.
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.
Other noninterest expense decreased $1.7 million to $3.9 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.
Results of Operations for the Years Ended December 31, 2022 and 2021 Years Ended December 31, 2022 2021 (Dollars In Thousands, except per share amounts) Net income $ 19,487 $ 70,791 Earnings per share - basic 0.89 2.98 Earnings per share - diluted 0.89 2.96 Return on average assets 0.96 % 3.20 % Return on average equity 4.91 % 16.38 % - 46 - Table of Contents 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.
Results of Operations for the Years Ended December 31, 2023 and 2022 Years Ended December 31, 2023 2022 (Dollars In Thousands, except per share amounts) Net income $ 9,375 $ 19,487 Earnings per share - basic 0.47 0.89 Earnings per share - diluted 0.46 0.89 Return on average assets 0.44 % 0.96 % Return on average equity 2.62 % 4.91 % - 47 - 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.
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 2021 amounts presented are calculated under the prior accounting standard. Comparison of Consolidated Waterstone Financial, Inc. Financial Condition at December 31, 2023 and at December 31, 2022 Total Assets. Total assets increased by $181.7 million, or 8.9%, to $2.21 billion at December 31, 2023 from $2.03 billion at December 31, 2022.
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.
We originated $2.12 billion in mortgage loans held for sale (including sales to the community banking segment) during the year ended December 31, 2023, which represents a decrease of $641.8 million, or 23.2%, from the $2.76 billion originated during the year ended December 31, 2022.
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.
During the years ended December 31, 2023 and 2022, we repurchased common stock of $26.0 million and $47.8 million, respectively. During the years ended December 31, 2023 and 2022, we paid cash dividends on common stock of $15.4 million and $30.3 million, respectively. Deposits decreased by $8.4 million from December 31, 2022 to December 31, 2023.
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.
During the year ended December 31, 2023, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties. The sale generated $3.5 million in net proceeds and a $583,000 gain. During the year ended December 31, 2022, there were no sales of mortgage servicing rights.
(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.
(6) Net interest margin represents net interest income divided by average total interest-earning assets. - 48 - 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).
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.
Shareholders' equity decreased primarily due to the declaration of dividends and the repurchase of stock. 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, increases in the values of securities available for sale, and unearned ESOP shares vesting.
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 purchased $29.5 million and $90.0 million in debt securities and mortgage related securities classified as available for sale during the years ended December 31, 2023 and 2022, respectively. The net decreases in deposits were $8.4 million and $34.4 for the year ending December 31, 2023 and 2022.
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.
The forecast factor remained unchanged as we monitor the economic environment going forward. 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.
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.
Total loan origination volume on a consolidated basis decreased $525.9 million, or 20.6%, to $2.02 billion during the year ended December 31, 2023 compared to $2.55 billion during the year ended December 31, 2022. Gross margin on loans originated and sold decreased 2.6% at the mortgage banking segment.
This was primarily due to increases at the community banking and mortgage banking segments for continued investments in technology and security. • Professional fees increased $540,000, or 42.4%, to $1.8 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. • Professional fees increased $871,000, or 48.0%, to $2.7 million during the year ended December 31, 2023.
At or for the Year Ended December 31, 2022 2021 2020 (In Thousands, except per share amounts) Selected Financial Condition Data: Total assets $ 2,031,672 $ 2,215,858 $ 2,184,587 Cash and cash equivalents 46,642 376,722 94,767 Securities available for sale 196,588 179,016 159,619 Loans held for sale 131,188 312,738 402,003 Loans receivable 1,510,178 1,205,785 1,375,137 Allowance for credit losses (1) 17,757 15,778 18,823 Loans receivable, net 1,492,421 1,190,007 1,356,314 Real estate owned, net 145 148 322 Deposits 1,199,012 1,233,386 1,184,870 Borrowings 386,784 477,127 508,074 Total shareholders' equity 370,486 432,773 413,118 Selected Operating Data: Interest income $ 70,245 $ 69,883 $ 78,484 Interest expense 13,291 14,368 24,984 Net interest income 56,954 55,515 53,500 Provision (credit) for credit losses (1) 968 (3,990 ) 6,340 Net interest income after provision for credit losses (1) 55,986 59,505 47,160 Noninterest income 105,555 203,195 244,017 Noninterest expense 137,062 170,594 183,061 Income before income taxes 24,479 92,106 108,116 Provision for income taxes 4,992 21,315 26,971 Net income $ 19,487 $ 70,791 $ 81,145 Per common share: Income per share - basic $ 0.89 $ 2.98 $ 3.32 Income per share - diluted $ 0.89 $ 2.96 $ 3.30 Book value $ 16.71 $ 17.45 $ 16.47 Dividends declared $ 0.80 $ 1.80 $ 1.36 (1) The Company adopted ASU 2016-13 as of January 1, 2022.
At or for the Year Ended December 31, 2023 2022 2021 (In Thousands, except per share amounts) Selected Financial Condition Data: Total assets $ 2,213,389 $ 2,031,672 $ 2,215,858 Cash and cash equivalents 36,421 46,642 376,722 Securities available for sale 204,907 196,588 179,016 Loans held for sale 164,993 131,188 312,738 Loans receivable 1,664,215 1,510,178 1,205,785 Allowance for credit losses (1) 18,549 17,757 15,778 Loans receivable, net 1,645,666 1,492,421 1,190,007 Real estate owned, net 254 145 148 Deposits 1,190,624 1,199,012 1,233,386 Borrowings 611,054 386,784 477,127 Total shareholders' equity 344,056 370,486 432,773 Selected Operating Data: Interest income $ 99,208 $ 70,245 $ 69,883 Interest expense 48,993 13,291 14,368 Net interest income 50,215 56,954 55,515 Provision (credit) for credit losses (1) 656 968 (3,990 ) Net interest income after provision for credit losses (1) 49,559 55,986 59,505 Noninterest income 81,185 105,555 203,195 Noninterest expense 119,712 137,062 170,594 Income before income taxes 11,032 24,479 92,106 Provision for income taxes 1,657 4,992 21,315 Net income $ 9,375 $ 19,487 $ 70,791 Per common share: Income per share - basic $ 0.47 $ 0.89 $ 2.98 Income per share - diluted $ 0.46 $ 0.89 $ 2.96 Book value $ 16.94 $ 16.71 $ 17.45 Dividends declared $ 0.70 $ 0.80 $ 1.80 (1) The Company adopted ASU 2016-13 as of January 1, 2022.
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 primarily due to a decrease in the fair value mark on derivatives as interest rates decreased and deferred taxes decreased as unrealized losses on available for sale securities decreased due to falling long-term interest rates. Deposits. Deposits decreased by $8.4 million to $1.19 billion at December 31, 2023, from $1.20 billion at December 31, 2022.
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.
The provision for credit losses consisted of a $712,000 provision related to loans due to loan growth and a $271,000 of negative provision related to unfunded commitments as the loan pipeline balance decreased for the year ended December 31, 2023. The provision for credit losses related to loans increased primarily due to loan growth in the portfolio.
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.
During the year ended December 31, 2023, 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.
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.
Total mortgage banking noninterest income decreased $25.6 million, or 24.6%, to $78.5 million during the year ended December 31, 2023 compared to $104.1 million during the year ended December 31, 2022.
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 .
Cash and cash equivalents decreased $10.2 million to $36.4 million at December 31, 2023 from $46.6 million at December 31, 2022. The decrease in cash and cash equivalents primarily reflects the funding of loans held for sale, loans held for investment, and securities available for sale as well as the decrease of funding sources from deposits.
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.
The increase in total assets primarily reflects increases in loans held for investment and loans held for sale, partially offset by decreases cash and cash equivalents, office properties and equipment, and other assets. The increase in total assets also reflects liability increases in borrowings. Cash and Cash Equivalents.
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.
The $656,000 provision for credit losses consisted of a $927,000 provision related to loans and $271,000 of negative provision related to unfunded commitments for the year ended December 31, 2023.
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. • Other noninterest expense increased $1.3 million, or 12.4%, to $12.6 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, 2022. Additionally, legal costs increased at the mortgage banking segment due to ongoing legal matters. • Other noninterest expense decreased $823,000, or 6.5%, to $11.8 million during the year ended December 31, 2023.
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.
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.
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.
In addition, at December 31, 2023, we had unfunded commitments under construction loans of $76.7 million, unfunded commitments under business lines of credit of $15.4 million and unfunded commitments under home equity lines of credit and standby letters of credit of $12.2 million.
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. • Service charges on loans and deposits decreased primarily due to a decrease in loan prepayment fees. • 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.
See "Comparison of Mortgage Banking Segment Results of Operations for the Year December 31, 2023 and 2022" above, for additional discussion of the increase in mortgage banking income. • Service charges on loans and deposits decreased primarily due to a decrease in loan prepayment fees and other loan fees. • The decrease in other noninterest income was due primarily to an decrease in mortgage servicing fee income and gain from death benefit decreased as there was a gain recorded on one bank owned life insurance policy during the year ended December 31, 2022 compared to none during the year ended December 31, 2023.
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.
Securities Available for Sale . Securities available for sale increased by $8.3 million to $204.9 million at December 31, 2023 from $196.6 million at December 31, 2022. The increase was primarily due to purchases of mortgage-related securities to take advantage of the increase in interest rates.
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.
Total compensation, payroll taxes and other employee benefits decreased $15.9 million, or 19.6%, to $65.1 million for the year ended December 31, 2023 compared to $81.0 million for 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. • 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 a decrease at the mortgage banking segment in an effort to control costs. • Data processing expense increased $183,000, or 4.1% to $4.7 million during the year ended December 31, 2023.
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.
The decrease in loan production volume was driven by a $424.9 million, or 17.3%, decrease in home purchase volume due to inventory constraints in the market, housing affordability, and as interest rates have increased.
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.
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. Additionally, salaries expense decreased due a reduction in headcount during the year ended December 31, 2023 compared to the year ended December 31, 2022. Comparison of Consolidated Waterstone Financial, Inc.
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.
Other liabilities decreased primarily due to a decrease of the fair value mark on derivative liabilities related to the loans held for sale and the back-to-back swaps decreased with the decrease in interest rates and a decrease in dividends payable as fourth-quarter dividends per share decreased to $0.15 in 2023 from $0.20 in 2022. Shareholders ’ Equity.
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.
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, 2023, we had $159.0 million in long term advances from the FHLB with contractual maturity dates in 2025, 2027, and 2028.
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.
Cash received from the principal repayments of debt and mortgage related securities and maturity and calls of debt securities totaled $24.9 million and $50.7 million for the years ended December 31, 2023 and 2022, respectively.
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 decreased $4.9 million to $51.7 million for the year ended December 31, 2023 compared to $56.6 million for the year ended December 31, 2022.
The decrease was due primarily to decreased depreciation expense and maintenance expense. • Advertising expense increased $448,000, or 12.7%, to $4.0 million during the year ended December 31, 2022.
The decrease was due primarily to increased building maintenance/repair costs. • Advertising expense decreased $197,000, or 5.0%, to $3.8 million during the year ended December 31, 2023.
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.
We received a $1.2 million death benefit on a bank owned life insurance policy in 2022. There was an increase in net borrowings of $224.3 million for the year ended December 31, 2023 and a net decrease in borrowings of $90.3 million for the year ended December 31, 2022.
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.
Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements During the year ended December 31, 2023, our FHLB short-term debt increased by $123.3 million and we repaid $304.0 million in FHLB long-term debt and borrowed $259.0 million of new FHLB long-term debt. In addition, we borrowed $145.0 in short-term debt from the Federal Reserve Bank.
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.
The decrease was driven by a $96.4 million decrease in total transaction accounts, offset by an $88.0 million increase in time deposits. 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.
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 years ended December 31, 2023, and 2022, we originated on a consolidated basis $2.02 billion and $2.55 billion in loans for sale and sold loans on a consolidated basis of $2.06 billion and $2.81 billion.
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.
Additionally, the average balance increased $183.8 million to $532.2 million during the year ended December 31, 2023, compared to $348.5 million during the year ended December 31, 2022. - 49 - Provision for Credit Losses There was a provision for credit losses of $656,000 during the year ended December 31, 2023 compared to a $968,000 provision for loan losses 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 increase in the loan portfolio provision is due to the increase in loan balance and the decrease on the unfunded commitments is due to the decrease in the loan pipeline. During the year ended December 31, 2023, we made adjustments to our qualitative factors, primarily to account for the changes in internal metrics and external risk factors.
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 (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.
Years Ended December 31, Years Ended December 31, 2023 versus 2022 2022 versus 2021 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) $ 13,483 $ 13,730 $ 27,213 $ (5,567 ) $ 4,136 $ (1,431 ) Mortgage related securities (3) 202 610 812 1,190 97 1,287 Other interest-earning assets (3)(4) (3,376 ) 4,306 930 (1,204 ) 1,648 444 Total interest-earning assets 10,309 18,646 28,955 (5,581 ) 5,881 300 Interest expense: Demand accounts 6 15 21 11 - 11 Money market and savings accounts (305 ) 3,633 3,328 71 226 297 Certificates of deposit 677 16,849 17,526 (214 ) 349 135 Total interest-bearing deposits 378 20,497 20,875 (132 ) 575 443 Borrowings 5,865 8,962 14,827 (3,790 ) 2,270 (1,520 ) Total interest-bearing liabilities 6,243 29,459 35,702 (3,922 ) 2,845 (1,077 ) Net change in net interest income $ 4,066 $ (10,813 ) $ (6,747 ) $ (1,659 ) $ 3,036 $ 1,377 (1) Includes net deferred loan fee amortization income of $643,000, $684,000 and $2.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.
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.
Shareholders’ equity decreased by $26.4 million, or 7.1%, to $344.1 million at December 31, 2023 from $370.5 million at December 31, 2022. Shareholders' equity decreased primarily due to the declaration of dividends and the repurchase of stock.
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.
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.
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. - 45 - Table of Contents 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.
Noninterest income decreased $834,000 for the year ended December 31, 2023 due primarily to a decrease in prepayment penalties on loans and gain from death benefit received on one bank-owned life insurance policy during 2022. - 46 - Compensation, payroll taxes, and other employee benefits expense increased $853,000 to $19.9 million during the year ended December 31, 2023 primarily due to an increase in salaries due to annual raises that took place at the beginning of the year and an increase in full-time equivalents due to fewer open positions.
As a result, changes in market interest rates have a greater impact on performance than do the effects of 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. - 53 -
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.
Offsetting the decreases, the Company sold mortgage servicing rights related to $318.4 million in loans serviced for third parties during the year ended December 31, 2023. The sale generated $3.5 million in net proceeds on a mortgage servicing rights book value of $2.9 million and resulted in a $583,000 gain.
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. • 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 in compensation expense was primarily related to commission expense and branch manager compensation driven by decreased loan origination volume and branch profitability as gross margins decreased.
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. • 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.
Net Interest Income Net interest income decreased $6.7 million, or 11.8%, to $50.2 million during the year ended December 31, 2023 compared to $57.0 million during the year ended December 31, 2022. • Interest income on loans increased $27.2 million, or 43.2%, to $90.1 million during the year ended December 31, 2023 compared to $62.9 million during the year ended December 31, 2022 due primarily to an 85 basis point increase in average yield on loans as interest rates continued to increase over the past year and an increase in average loan balance as loans held for investment increased.
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. • 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. • 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 increase was primarily due to an increase in variable compensation and overall salary expense due to annual raises and an increase in full-time equivalents due to open positions being filled. • Occupancy, office furniture and equipment expense at the mortgage banking segment decreased $410,000 to $4.7 million during the year ended December 31, 2023 primarily resulting from lower equipment lease, maintenance, computer, and depreciation expenses. • Occupancy, office furniture and equipment expense at the community banking segment increased $27,000 to $3.7 million during the year ended December 31, 2023 compared to the prior year.
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.
In addition, we borrowed $145.0 million from the Federal Reserve Bank, all of which was incremental to 2022. External short-term borrowings at the mortgage banking segment increased a total of $1.0 million to $2.1 million at December 31, 2023 from $1.1 million at December 31, 2022.
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. • Interest income from mortgage related securities increased $1.3 million, or 65.9%, primarily as the average balance increased $59.3 million. • 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.
The increase in average loan balance was driven by an increase of a $307.2 million, or 23.7%, in the average balance of loans held for investment offset by a decrease of $21.7 million, or 12.6%, in average loans held for sale. • Interest income from mortgage related securities increased $812,000, or 25.1%, primarily as the average balance increased $9.7 million and the yield increased by 36 basis points. • Interest income from debt securities increased $938,000, or 23.1%, to $5.0 million, due primarily to a 267 basis point increase in yield.
WaterStone Bank has various financial obligations, including contractual obligations and commitments that may require future cash payments.
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, 2023 and the respective maturity dates.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAnalysis of Net Interest Income Sensitivity Immediate Change in Rates +300 +200 +100 -100 (Dollar Amounts in Thousands) As of December 31, 2022 Dollar Change $ (5,632 ) $ (3,886 ) $ (2,053 ) $ (233 ) Percentage Change (10.8 %) (7.4 %) (3.9 %) (0.4 %) At December 31, 2022, a 100 basis point instantaneous increase in interest rates had the effect of decreasing forecast net interest income over the next 12 months by 3.92% while a 100 basis point decrease in rates had the effect of decreasing net interest income by 0.44%. - 54 - Table of Contents
Biggest changeAnalysis of Net Interest Income Sensitivity Immediate Change in Rates +300 +200 +100 -100 (Dollar Amounts in Thousands) As of December 31, 2023 Dollar Change $ (11,128 ) $ (7,467 ) $ (3,775 ) $ 4,304 Percentage Change (27.4 %) (18.4 %) (9.3 %) 10.6 % At December 31, 2023, a 100 basis point instantaneous increase in interest rates had the effect of decreasing forecast net interest income over the next 12 months by 9.3% while a 100 basis point decrease in rates had the effect of increasing net interest income by 10.6%. - 54 -
At least quarterly we review the potential effect changes in interest rates may have on the repayment or repricing of rate sensitive assets and funding requirements of rate sensitive liabilities. Our most recent simulation uses projected repricing of assets and liabilities at December 31, 2022 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments.
At least quarterly we review the potential effect changes in interest rates may have on the repayment or repricing of rate sensitive assets and funding requirements of rate sensitive liabilities. Our most recent simulation uses projected repricing of assets and liabilities at December 31, 2023 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments.

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