Waterstone Financial Inc

Previous wording

The following discussion and analysis is presented to assist the reader in understanding and evaluating the Company’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. The detailed discussion in the sections below focuses on the results of operations for the three and six months ended June 30, 2024 and 2023 and the financial condition as of June 30, 2024 compared to the financial condition as of December 31, 2023.

Current wording

The following discussion and analysis is presented to assist the reader in understanding and evaluating the Company’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. The detailed discussion in the sections below focuses on the results of operations for the three and nine months ended September 30, 2024 and 2023 and the financial condition as of September 30, 2024 compared to the financial condition as of December 31, 2023.

Previous wording

Our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses. Our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses. We have provided below a discussion of the material results of operations for each segment on a separate basis for the three and six months ended June 30, 2024 and 2023, which focuses on noninterest income and noninterest expenses. We have also provided a discussion of the consolidated operations of the Company, which includes the consolidated operations of the Bank and Waterstone Mortgage Corporation, for the same periods.

Current wording

Our community banking segment generates the significant majority of our consolidated net interest income and requires the significant majority of our provision for loan losses. Our mortgage banking segment generates the significant majority of our noninterest income and a majority of our noninterest expenses. We have provided below a discussion of the material results of operations for each segment on a separate basis for the three and nine months ended September 30, 2024 and 2023, which focuses on noninterest income and noninterest expenses. We have also provided a discussion of the consolidated operations of the Company, which includes the consolidated operations of the Bank and Waterstone Mortgage Corporation, for the same periods.

Previous wording

There were no significant items that impacted earnings for the three and six months ended June 30, 2024 and 2023.

Current wording

There were no significant items that impacted earnings for the three and nine months ended September 30, 2024 and 2023.

Previous wording

Net income totaled $4.3 million for the three months ended June 30, 2024 compared to $5.2 million for the three months ended June 30, 2023. Net interest income decreased $2.0 million to $11.2 million for the three months ended June 30, 2024 compared to $13.2 million for the three months ended June 30, 2023. Interest expense on deposits and borrowings increased $6.2 million as replacement rates increased in the rising interest rate environment. Offsetting the increase in interest expense on deposit and borrowings, interest income on loans increased $4.2 million as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates.

Current wording

Net income totaled $4.7 million for the three months ended September 30, 2024 compared to $4.5 million for the three months ended September 30, 2023. Net interest income decreased $181,000 to $12.3 million for the three months ended September 30, 2024 compared to $12.4 million for the three months ended September 30, 2023. Interest expense on deposits and borrowings increased $3.4 million as replacement rates increased in the rising interest rate environment. Offsetting the increase in interest expense on deposit and borrowings, interest income on loans increased $3.2 million as replacement rates and average loans held for investment balances were higher than in the prior year and interest income on debt securities, federal funds sold and short-term investments increased due to the increase in the average balance and replacement rates.

Previous wording

There was a negative provision for credit losses of $279,000 for the three months ended June 30, 2024 compared to a provision for credit losses of $158,000 for the three months ended June 30, 2023. The negative provision for credit losses of $279,000 consisted of a $197,000 negative provision related to loans and $82,000 negative provision related to unfunded commitments for the three months ended June 30, 2024. During the three months ended June 30, 2024, the decrease related to loans was primarily due to adjustments in the qualitative factors related to single-family loans during the quarter offset by an increases to qualitative factors in our commercial real estate portfolio and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loans that are currently waiting to be funded compared to the prior quarter end. 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.

Current wording

There was a negative provision for credit losses of $302,000 for the three months ended September 30, 2024 compared to a provision for credit losses of $445,000 for the three months ended September 30, 2023. The negative provision for credit losses of $302,000 consisted of a $218,000 negative provision related to loans and $84,000 negative provision related to unfunded commitments for the three months ended September 30, 2024. During the three months ended September 30, 2024, the current quarter decrease was primarily due to a decrease in historical loss rates, net recoveries for the period, and improvements in certain internal asset quality metrics offset by an adjustment in the qualitative factors primarily related to increases in economic risks related to commercial real estate loans during the quarter. The negative provision for credit losses related to unfunded loan commitments was $84,000 for the quarter ended September 30, 2024 compared to a provision for credit losses related to unfunded loan commitments of $239,000 for the quarter ended September 30, 2023. The negative provision for credit losses related to unfunded loan commitments for the quarter ended September 30, 2024 was due primarily to a decrease of loans that are currently waiting to be funded compared to the prior quarter end. 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.

Previous wording

Compensation, payroll taxes, and other employee benefits expense increased $433,000 to $5.1 million compared to the quarter ending June 30, 2023 primarily due to an increase in health insurance expense as claims increased. Other noninterest expense decreased $969,000 to $672,000 as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased. These fees are eliminated in the consolidated statements of income.

Current wording

Compensation, payroll taxes, and other employee benefits expense increased $708,000 to $5.3 million compared to the quarter ending September 30, 2023 primarily due to an increase in health insurance expense as claims increased. Other noninterest expense decreased $101,000 to $602,000 as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased. These fees are eliminated in the consolidated statements of income.

Previous wording

Net income totaled $1.3 million for the three months ended June 30, 2024 compared to net loss of $1.2 million for the three months ended June 30, 2023. We originated $634.1 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended June 30, 2024, which represents an increase of $10.8 million, or 1.7%, from the $623.3 million originated during the three months ended June 30, 2023. The increase in loan production volume was driven by a $23.9 million, or 106.3%, increase in refinance products and was offset by a $13.1 million decrease in purchase products as real estate inventory levels continue to be at low levels. Total mortgage banking noninterest income increased $2.0 million, or 8.9%, to $25.1 million during the three months ended June 30, 2024 compared to $23.0 million during the three months ended June 30, 2023. The increase in mortgage banking noninterest income was related to a 1.7% increase in volume and a 5.4% increase in gross margin on loans originated and sold for the three months ended June 30, 2024 compared to June 30, 2023. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators. We sell loans on both a servicing-released and a servicing-retained basis. Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing.

Current wording

Net loss totaled $50,000 for the three months ended September 30, 2024 compared to net loss of $1.4 million for the three months ended September 30, 2023. We originated $558.7 million in mortgage loans held for sale (including sales to the community banking segment) during the three months ended September 30, 2024, which represents a decrease of $38.8 million, or 6.5%, from the $597.6 million originated during the three months ended September 30, 2023. The decrease in loan production volume was driven by a $73.4 million, or 12.9%, decrease in purchase products and was offset by a $34.5 million increase in refinance products. Total mortgage banking noninterest income decreased $66,000, or 0.3%, to $21.4 million during the three months ended September 30, 2024 compared to $21.5 million during the three months ended September 30, 2023. The decrease in mortgage banking noninterest income was related to a 6.5% decrease in volume offset by a 5.9% increase in gross margin on loans originated and sold for the three months ended September 30, 2024 compared to September 30, 2023. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators. We sell loans on both a servicing-released and a servicing-retained basis. Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing.

Previous wording

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan. Loans originated for the purchase of a residential property comprised 92.7% of total originations during the three months ended June 30, 2024, compared to 96.4% of total originations during the three months ended June 30, 2023, respectively. The mix of loan type trended towards more conventional loans and less governmental loans, with governmental loans and conventional loans comprising 35.4% and 64.6% of all loan originations, respectively, during the three months ended June 30, 2024, compared to 38.7% and 61.3% of all loan originations, respectively, during the three months ended June 30, 2023.

Current wording

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan. Loans originated for the purchase of a residential property comprised 88.9% of total originations during the three months ended September 30, 2024, compared to 95.4% of total originations during the three months ended September 30, 2023, respectively. The mix of loan type trended towards more conventional loans and less governmental loans, with governmental loans and conventional loans comprising 35.2% and 64.8% of all loan originations, respectively, during the three months ended September 30, 2024, compared to 39.2% and 60.8% of all loan originations, respectively, during the three months ended September 30, 2023.

Previous wording

Net interest income decreased $2.0 million, or 15.7%, to $10.7 million during the three months ended June 30, 2024 compared to $12.7 million during the three months ended June 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Current wording

Net interest income decreased $472,000, or 3.9%, to $11.5 million during the three months ended September 30, 2024 compared to $12.0 million during the three months ended September 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Previous wording

There was a negative provision for credit losses of $225,000 for the three months ended June 30, 2024 compared to a $186,000 provision for credit losses for the three months ended June 30, 2023. The $225,000 negative provision for credit losses consisted of a $143,000 negative provision related to loans and a negative provision related to unfunded commitments of $82,000 for the three months ended June 30, 2024. During the three months ended June 30, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the decrease in provision related to unfunded commitments was primarily due to an decrease in the loans yet to be funded. 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.

Current wording

There was a negative provision for credit losses of $377,000 for the three months ended September 30, 2024 compared to a $445,000 provision for credit losses for the three months ended September 30, 2023. The $377,000 negative provision for credit losses consisted of a $293,000 negative provision related to loans and a negative provision related to unfunded commitments of $84,000 for the three months ended September 30, 2024. During the three months ended September 30, 2024, the decrease related to loans was primarily due to a recovery, a decrease in historical losses used in the calculation, and an improvement in certain asset quality metrics. The decrease in provision related to unfunded commitments was primarily due to an decrease in the construction loans yet to be funded. 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.

Previous wording

Total noninterest expenses decreased $663,000, or 2.1%, to $30.3 million during the three months ended June 30, 2024 compared to $30.9 million during the three months ended June 30, 2023.

Current wording

Total noninterest expenses decreased $1.5 million, or 4.9%, to $28.6 million during the three months ended September 30, 2024 compared to $30.0 million during the three months ended September 30, 2023.

Previous wording

Income tax expense totaled $1.4 million for the three months ended June 30, 2024 compared to $1.1 million during the three months ended June 30, 2023. Income tax expense was recognized on the statement of income during the three months ended June 30, 2024 at an effective rate of 20.0% of pretax income and during the three months ended June 30, 2023 at an effective rate of 21.3% of pretax income.

Current wording

Income tax expense totaled $1.2 million for the three months ended September 30, 2024 compared to $500,000 during the three months ended September 30, 2023. Income tax expense was recognized on the statement of income during the three months ended September 30, 2024 at an effective rate of 19.7% of pretax income and during the three months ended September 30, 2023 at an effective rate of 13.3% of pretax income. The increase in the effective rate related to a decrease in pre-tax income during the three months ended September 30, 2023.

Previous wording

Comparison of Community Banking Segment Results of Operations for the Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of Community Banking Segment Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Net income totaled $7.0 million for the six months ended June 30, 2024 compared to $10.0 million for the six months ended June 30, 2023. Net interest income decreased $4.4 million to $22.8 million for the six months ended June 30, 2024 compared to $27.2 million for the six months ended June 30, 2023. Interest expense on deposits and borrowings increased $13.8 million as replacement rates increased in the rising interest rate environment. Offsetting the increase in interest expense on deposit and borrowings, interest income on loans increased $8.6 million as replacement rates and average loans held for investment balances were higher than in the prior year.

Current wording

Net income totaled $11.7 million for the nine months ended September 30, 2024 compared to $14.6 million for the nine months ended September 30, 2023. Net interest income decreased $4.6 million to $35.1 million for the nine months ended September 30, 2024 compared to $39.7 million for the nine months ended September 30, 2023. Interest expense on deposits and borrowings increased $17.2 million as replacement rates increased in the rising interest rate environment. Offsetting the increase in interest expense on deposit and borrowings, interest income on loans increased $11.8 million as replacement rates and average loans held for investment balances were higher than in the prior year.

Previous wording

There was a negative provision for credit losses of $174,000 for the six months ended June 30, 2024 compared to a provision for credit losses of $546,000 for the six months ended June 30, 2023. The negative provision for credit losses of $174,000 consisted of a $162,000 negative provision related to loans and $12,000 negative provision related to unfunded commitments for the six months ended June 30, 2024. During the six months ended June 30, 2024, the decrease related to loans was primarily due to decreases in historical loss rates and loan originations offset by adjustments in the qualitative factors related to increases in treasury interest rates during the quarter. The decrease in provision related to unfunded commitments was primarily due to an decrease in the loans that are currently waiting to be funded compared to the prior quarter end. 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.

Current wording

There was a negative provision for credit losses of $476,000 for the nine months ended September 30, 2024 compared to a provision for credit losses of $991,000 for the nine months ended September 30, 2023. The negative provision for credit losses of $476,000 consisted of a $380,000 negative provision related to loans and $96,000 negative provision related to unfunded commitments for the nine months ended September 30, 2024. During the nine months ended September 30, 2024, the decrease related to loans was primarily due to decreases in historical loss rates and loan originations. The decrease in provision related to unfunded commitments was primarily due to an decrease in the loans that are currently waiting to be funded compared to the prior quarter end. 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.

Previous wording

Compensation, payroll taxes, and other employee benefits expense increased $625,000 to $10.5 million compared to the quarter ending June 30, 2023 primarily due to an increase in health insurance expense as claims increased. Other noninterest expense decreased $1.2 million to $1.4 million as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased. These fees are eliminated in the consolidated statements of income.

Current wording

Compensation, payroll taxes, and other employee benefits expense increased $1.3 million to $15.8 million compared to the quarter ending September 30, 2023 primarily due to an increase in health insurance expense as claims increased. Other noninterest expense decreased $1.3 million to $2.0 million as certain loan fees paid to the mortgage banking segment for the purchase of single-family adjustable rate mortgage loans decreased. These fees are eliminated in the consolidated statements of income.

Previous wording

Net income totaled $1.6 million for the six months ended June 30, 2024 compared to net loss of $4.0 million for the six months ended June 30, 2023. We originated $1.12 billion in mortgage loans held for sale (including sales to the community banking segment) during the six months ended June 30, 2024, which represents an increase of $53.2 million, or 5.0%, from the $1.07 billion originated during the six months ended June 30, 2023. The increase in loan production volume was driven by a $10.9 million, or 1.1%, increase in purchase products and a $33.8 million increase in refinance products as mortgage rates decreased to start the year and average inventory levels have increased. Total mortgage banking noninterest income increased $4.4 million, or 10.8%, to $45.4 million during the six months ended June 30, 2024 compared to $41.0 million during the six months ended June 30, 2023. The increase in mortgage banking noninterest income was related to a 5.0% increase in volume and by a 6.8% increase in gross margin on loans originated and sold for the six months ended June 30, 2024 compared to June 30, 2023. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators. We sell loans on both a servicing-released and a servicing-retained basis. Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing.

Current wording

Net income totaled $1.6 million for the nine months ended September 30, 2024 compared to net loss of $5.4 million for the nine months ended September 30, 2023. We originated $1.68 billion in mortgage loans held for sale (including sales to the community banking segment) during the nine months ended September 30, 2024, which represents an increase of $14.3 million, or 0.9%, from the $1.66 billion originated during the nine months ended September 30, 2023. The increase in loan production volume was driven by a $75.2 million increase in refinance products as mortgage rates decreased to start the year offset by a $62.5 million , or 3.9%, decrease in purchase products. Total mortgage banking noninterest income increased $4.4 million, or 7.0%, to $66.8 million during the nine months ended September 30, 2024 compared to $62.4 million during the nine months ended September 30, 2023. The increase in mortgage banking noninterest income was related to a 0.9% increase in volume and by a 6.6% increase in gross margin on loans originated and sold for the nine months ended September 30, 2024 compared to September 30, 2023. Gross margin on loans originated and sold is the ratio of mortgage banking income (excluding the change in interest rate lock fair value) divided by total loan originations. The gross margin on loans originated and sold contraction reflects decreased industry demand due to the increased competition from mortgage originators. We sell loans on both a servicing-released and a servicing-retained basis. Waterstone Mortgage Corporation has contracted with a third party to service the loans for which we retain servicing.

Previous wording

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan. Loans originated for the purchase of a residential property comprised 91.8% of total originations during the six months ended June 30, 2024, compared to 96.5% of total originations during the six months ended June 30, 2023, respectively. The mix of loan type trended towards less conventional loans and more governmental loans, with governmental loans and conventional loans comprising 36.7% and 63.3% of all loan originations, respectively, during the six months ended June 30, 2024, compared to 37.2% and 62.8% of all loan originations, respectively, during the six months ended June 30, 2023.

Current wording

Additionally, our overall margin can be affected by the mix of both loan type (conventional loans versus governmental) and loan purpose (purchase versus refinance). Conventional loans include loans that conform to Fannie Mae and Freddie Mac standards, whereas governmental loans are those loans guaranteed by the federal government, such as a Federal Housing Authority or U.S. Department of Agriculture loan. Loans originated for the purchase of a residential property comprised 90.9% of total originations during the nine months ended September 30, 2024, compared to 96.1% of total originations during the nine months ended September 30, 2023, respectively. The mix of loan type trended towards more conventional loans and less governmental loans, with governmental loans and conventional loans comprising 36.3% and 63.7% of all loan originations, respectively, during the nine months ended September 30, 2024, compared to 37.9% and 62.1% of all loan originations, respectively, during the nine months ended September 30, 2023.

Previous wording

The decrease in other noninterest income was due primarily to a decrease in gain on sale of mortgage servicing rights. During the six months ended June 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties. The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the six months ended June 30, 2024. During the six months ended June 30, 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.

Current wording

The decrease in other noninterest income was due primarily to a decrease in gain on sale of mortgage servicing rights. During the nine months ended September 30, 2024, the Company sold mortgage servicing rights related to $233.1 million in loans serviced for third parties. The sale generated $2.1 million in net proceeds on a mortgage servicing rights book value of $2.0 million and resulted in a $152,000 gain during the nine months ended September 30, 2024. During the nine months ended September 30, 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.

Previous wording

Total compensation, payroll taxes and other employee benefits decreased $1.4 million, or 4.2%, to $31.6 million for the six months ended June 30, 2024 compared to $33.0 million for the six months ended June 30, 2023. The decrease in compensation expense was primarily related to decreased salaries driven by a reduction in headcount and health insurance expense offset by loan production commissions and branch manager pay.

Current wording

Total compensation, payroll taxes and other employee benefits decreased $2.6 million, or 5.3%, to $47.6 million for the nine months ended September 30, 2024 compared to $50.2 million for the nine months ended September 30, 2023. The decrease in compensation expense was primarily related to decreased salaries driven by a reduction in headcount, sign on incentives, and health insurance expense offset by loan production commissions and branch manager pay.

Previous wording

Net interest income decreased $4.7 million, or 17.6%, to $21.8 million during the six months ended June 30, 2024 compared to $26.5 million during the six months ended June 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Current wording

Net interest income decreased $5.1 million, or 13.3%, to $33.3 million during the nine months ended September 30, 2024 compared to $38.5 million during the nine months ended September 30, 2023 primarily due to the increased cost of funds as a result of the rising interest rate environment.

Previous wording

There was a negative provision for credit losses of $158,000 for the six months ended June 30, 2024 compared to a $646,000 provision for credit losses for the six months ended June 30, 2023. The $158,000 negative provision for credit losses consisted of a $146,000 negative provision related to loans and a negative provision related to unfunded commitments of $12,000 for the six months ended June 30, 2024. During the six months ended June 30, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loans yet to be funded. 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.

Current wording

There was a negative provision for credit losses of $535,000 for the nine months ended September 30, 2024 compared to a $1.1 million provision for credit losses for the nine months ended September 30, 2023. The $535,000 negative provision for credit losses consisted of a $439,000 negative provision related to loans and a negative provision related to unfunded commitments of $96,000 for the nine months ended September 30, 2024. During the nine months ended September 30, 2024, the decrease related to loans was primarily due to a decrease in originations and historical losses used in the calculation and the decrease in provision related to unfunded commitments was primarily due to a decrease in the loans yet to be funded. 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.

Previous wording

Total noninterest income increased $5.7 million, or 13.5% to $47.7 million during the six months ended June 30, 2024 compared to $42.1 million during the six months ended June 30, 2023. The increase resulted primarily from increase in mortgage banking noninterest income offset by a decrease in other income.

Current wording

Total noninterest income increased $6.0 million, or 9.3% to $70.3 million during the nine months ended September 30, 2024 compared to $64.3 million during the nine months ended September 30, 2023. The increase resulted primarily from increase in mortgage banking noninterest income offset by a decrease in other income.

Previous wording

Total noninterest expenses decreased $2.2 million, or 3.7%, to $57.8 million during the six months ended June 30, 2024 compared to $60.0 million during the six months ended June 30, 2023.

Current wording

Total noninterest expenses decreased $3.7 million, or 4.1%, to $86.4 million during the nine months ended September 30, 2024 compared to $90.1 million during the nine months ended September 30, 2023.

Previous wording

Income tax expense totaled $3.2 million for the six months ended June 30, 2024 compared to $1.7 million during the six months ended June 30, 2023. Income tax expense was recognized on the statement of income during the six months ended June 30, 2024 at an effective rate of 26.5% of pretax income and during the six months ended June 30, 2023 at an effective rate of 21.7% of pretax income. On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law. This publication enabled us to estimate the impact on our Wisconsin state income tax expense. The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. The elimination of Wisconsin state income tax expense resulted in the establishment of a valuation allowance for Wisconsin state income deferred tax assets, resulting in a one-time $1.1 million charge to state income tax expense in the first quarter. Partially offsetting the impact of the charge related to the valuation allowance we realized a one-time benefit of approximately $368,000 during the quarter to recognize a reduction in current state income tax provision.

Current wording

Income tax expense totaled $4.3 million for the nine months ended September 30, 2024 compared to $2.2 million during the nine months ended September 30, 2023. Income tax expense was recognized on the statement of income during the nine months ended September 30, 2024 at an effective rate of 24.3% of pretax income and during the nine months ended September 30, 2023 at an effective rate of 19.0% of pretax income. On March 18, 2024, the State of Wisconsin Department of Revenue issued an emergency ruling with additional details of the law. This publication enabled us to estimate the impact on our Wisconsin state income tax expense. The impact moving forward should result in no Wisconsin state income taxes being expensed, resulting in a lower estimated effective tax rate. The elimination of Wisconsin state income tax expense resulted in the establishment of a valuation allowance for Wisconsin state income deferred tax assets, resulting in a one-time $1.1 million charge to state income tax expense in the first quarter. Partially offsetting the impact of the charge related to the valuation allowance we realized a one-time benefit of approximately $368,000 during the year to recognize a reduction in current state income tax provision.

Previous wording

Total Assets** – **Total assets increased by $76.2 million, or 3.4%, to $2.29 billion at June 30, 2024 from $2.21 billion at December 31, 2023. The increase in total assets primarily reflects an increase in loans receivable and loans held for sale. The increase in total assets reflects liability increases in deposits and borrowings.

Current wording

Total Assets** – **Total assets increased by $30.9 million, or 1.4%, to $2.24 billion at September 30, 2024 from $2.21 billion at December 31, 2023. The increase in total assets primarily reflects an increase in loans receivable and securities available for sale. The increase in total assets reflects liability increases in deposits and borrowings.

Previous wording

Cash and Cash Equivalents** – **Cash and cash equivalents increased $4.9 million, or 13.4%, to $41.3 million at June 30, 2024, compared to $36.4 million at December 31, 2023. The increase in cash and cash equivalents primarily reflects the increase of funding sources from borrowings, deposits, and advance payments by borrowers for taxes.

Current wording

Cash and Cash Equivalents** – **Cash and cash equivalents increased $5.0 million, or 13.7%, to $41.4 million at September 30, 2024, compared to $36.4 million at December 31, 2023. The increase in cash and cash equivalents primarily reflects the increase of funding sources from borrowings, deposits, and advance payments by borrowers for taxes.

Previous wording

Securities Available for Sale – Securities available for sale decreased $72,000 to $204.8 million at June 30, 2024. The decrease was primarily due to the decrease in fair value as longer term interest rates increased at the end of the period.

Current wording

Securities Available for Sale – Securities available for sale increased $8.3 million to $213.2 million at September 30, 2024. The increase was primarily due to the purchases of securities throughout the year exceeding paydowns and maturities and an increase in fair value as longer term interest rates decreased compared to the beginning of the year.

Previous wording

Loans Held for Sale - Loans held for sale increased $57.8 million to $222.8 million at June 30, 2024 due to the increase of purchase and refinance activity resulting from the usual seasonal activity increase seen during the spring and summer seasons.

Current wording

Loans Held for Sale - Loans held for sale decreased $9.1 million to $155.8 million at September 30, 2024 due to the decrease of purchase activity.

Previous wording

Loans Receivable - Loans receivable held for investment increased $14.6 million to $1.68 billion at June 30, 2024. The increase in total loans receivable was primarily attributable to increases in each of the construction and commercial real estate loan categories offset by decreases in the multi-family and one-to-four family loan categories.

Current wording

Loans Receivable - Loans receivable held for investment increased $31.2 million to $1.70 billion at September 30, 2024. The increase in total loans receivable was primarily attributable to increases in each of the multi-family, construction, and commercial real estate loan categories offset by a decrease in the one-to-four family loan category.

Previous wording

Allowance for Credit Losses - Loans** -** The allowance for credit losses decreased to $18.4 million at June 30, 2024. There was a $146,000 negative provision for credit losses - loans for the six months ended June 30, 2024. The negative provision for credit losses related to loans decreased primarily due to a decrease in originations and historical losses used in the calculation offset by an increase in certain qualitative factors. During the six months ended June 30, 2024, we made adjustments to our qualitative factors, primarily to account for the changes in interest rates, internal metrics, and external risk factors. See Note 3 - Loans Receivable of the notes to unaudited consolidated financial statements for further discussion on the allowance for credit losses. Additionally, net recoveries totaled $11,000 for the six months ended June 30, 2024.

Current wording

Allowance for Credit Losses - Loans** -** The allowance for credit losses decreased to $18.2 million at September 30, 2024. There was a $439,000 negative provision for credit losses - loans for the nine months ended September 30, 2024. The negative provision for credit losses related to loans decreased primarily due to a decrease in historical losses used in the calculation and decreases in certain qualitative factors. During the nine months ended September 30, 2024, we made adjustments to our qualitative factors, primarily to account for the changes in interest rates, internal metrics, and external risk factors. See Note 3 - Loans Receivable of the notes to unaudited consolidated financial statements for further discussion on the allowance for credit losses. Additionally, net recoveries totaled $88,000 for the nine months ended September 30, 2024.

Previous wording

Prepaid expenses and other assets – Total prepaid expenses and other assets decreased $4.3 million to $48.1 million at June 30, 2024. The decrease was primarily due to decreases in prepaid income taxes, mortgage servicing rights due to the sale, and deferred tax assets due to the WI state tax rate decrease.

Current wording

Prepaid expenses and other assets – Total prepaid expenses and other assets decreased $6.6 million to $45.8 million at September 30, 2024. The decrease was primarily due to decreases in back-to-back loan swap fair value adjustment as long term interest rates decreased, mortgage servicing rights due to the sale, and deferred tax assets due to the WI state tax rate decrease.

Previous wording

Deposits – Total deposits increased $33.3 million to $1.22 billion at June 30, 2024. The increase was driven by increases of $36.3 million in time deposits and $1.5 million in money market and savings deposits offset by a decrease of $4.5 million in demand deposits.

Current wording

Deposits – Total deposits increased $73.2 million to $1.26 billion at September 30, 2024. The increase was driven by increases of $73.9 million in time deposits and $6.0 million in money market and savings deposits offset by a decrease of $6.7 million in demand deposits.

Previous wording

Borrowings – Total borrowings increased $49.8 million, or 8.1%, to $660.8 million at June 30, 2024. The community banking segment paid off $148.3 million in long-term FHLB borrowings, borrowing $90.0 million of new long-term FHLB borrowings, and $108.1 million in new short-term FHLB borrowings. External short-term borrowings at the mortgage banking segment increased a total of $1.1 million at June 30, 2024 from December 31, 2023.

Current wording

Borrowings – Total borrowings decreased $50.9 million, or 8.3%, to $560.1 million at September 30, 2024. The community banking segment paid off $145.0 million in long-term FHLB borrowings, borrowed $150.0 million of new long-term FHLB borrowings, and paid off $54.7 million in new short-term FHLB and Federal Reserve Bank borrowings. External short-term borrowings at the mortgage banking segment decreased a total of $1.2 million at September 30, 2024 from December 31, 2023.

Previous wording

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $14.5 million to $21.1 million at June 30, 2024. The increase was the result of payments received from borrowers for their real estate taxes and is seasonally normal, as balances increase during the course of the calendar year until real estate tax obligations are paid in the fourth quarter.

Current wording

Advance Payments by Borrowers for Taxes - Advance payments by borrowers for taxes increased $21.2 million to $27.8 million at September 30, 2024. The increase was the result of payments received from borrowers for their real estate taxes and is seasonally normal, as balances increase during the course of the calendar year until real estate tax obligations are paid in the fourth quarter.

Previous wording

Other Liabilities - Other liabilities decreased $12.3 million to $48.8 million at June 30, 2024. Other liabilities decreased primarily due to a seasonal decrease in outstanding checks related to advance payments by borrowers for taxes. The Company receives payments from borrowers for their real estate taxes during the course of the calendar year until real estate tax obligations are paid in the fourth quarter. At the time at which the disbursements are made, the outstanding checks are classified as other liabilities in the statements of financial condition, and these amounts remain classified as other liabilities until settled.

Current wording

Other Liabilities - Other liabilities decreased $10.5 million to $50.5 million at September 30, 2024. Other liabilities decreased primarily due to a seasonal decrease in outstanding checks related to advance payments by borrowers for taxes. The Company receives payments from borrowers for their real estate taxes during the course of the calendar year until real estate tax obligations are paid in the fourth quarter. At the time at which the disbursements are made, the outstanding checks are classified as other liabilities in the statements of financial condition, and these amounts remain classified as other liabilities until settled. Additionally, the back-to-back loan swap fair value adjustment decreased as long term interest rates decreased. Offsetting the decreases, the interest rate expense payable to the Federal Reserve Bank increased as payments are due to time of principal payments.

Previous wording

Shareholders’** Equity** – Shareholders' equity decreased $9.1 million to $334.9 million at June 30, 2024. Shareholders' equity decreased primarily due to the declaration of dividends, the repurchase of stock, and decrease in the fair value of the securities portfolio. Partially offsetting the decreases, there were increases due to the net income, equity awards granted, and unearned ESOP shares vesting.

Current wording

Shareholders’** Equity** – Shareholders' equity decreased $2.1 million to $342.0 million at September 30, 2024. 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, equity awards granted, unearned ESOP shares vesting, and an increase in the fair value of the securities portfolio.

Previous wording

Total non-accrual loans increased by $673,000, or 14.0%, to $5.5 million as of June 30, 2024 compared to $4.8 million as of December 31, 2023. The ratio of non-accrual loans to total loans receivable was 0.33% at June 30, 2024 and 0.29% at December 31, 2023. During the six months ended June 30, 2024, $1.8 million in loans were placed on non-accrual status. Offsetting this activity, $343,000 in loans returned to accrual status and $788,000 in principal payments were received during the six months ended June 30, 2024.

Current wording

Total non-accrual loans increased by $560,000, or 11.6%, to $5.4 million as of September 30, 2024 compared to $4.8 million as of December 31, 2023. The ratio of non-accrual loans to total loans receivable was 0.32% at September 30, 2024 and 0.29% at December 31, 2023. During the nine months ended September 30, 2024, $2.1 million in loans were placed on non-accrual status. Offsetting this activity, $714,000 in loans returned to accrual status and $840,000 in principal payments were received during the nine months ended September 30, 2024.

Previous wording

Of the $5.5 million in total non-accrual loans as of June 30, 2024, $2.9 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary. A specific valuation allowance is established for an amount equal to the impairment when the carrying value of the loan exceeds the present value of expected future cash flows, discounted at the loan's original effective interest rate or the fair value of the underlying collateral with an adjustment made for costs to dispose of the asset. Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of June 30, 2024. The remaining $2.6 million of non-accrual loans were reviewed on an aggregate basis as of June 30, 2024.

Current wording

Of the $5.4 million in total non-accrual loans as of September 30, 2024, $2.6 million in loans have been specifically reviewed to assess whether a specific valuation allowance is necessary. A specific valuation allowance is established for an amount equal to the impairment when the carrying value of the loan exceeds the present value of expected future cash flows, discounted at the loan's original effective interest rate or the fair value of the underlying collateral with an adjustment made for costs to dispose of the asset. Based upon these specific reviews, no charge-offs have been recorded over the life of these loans and there were no specific reserves as of September 30, 2024. The remaining $2.8 million of non-accrual loans were reviewed on an aggregate basis as of September 30, 2024.

Previous wording

The outstanding principal balance of our five largest non-accrual loans as of June 30, 2024 totaled $2.5 million, which represents 44.8% of total non-accrual loans as of that date. Two of the loans were reviewed on an aggregate basis along with the other loans held for investment at the mortgage segment.

Current wording

The outstanding principal balance of our five largest non-accrual loans as of September 30, 2024 totaled $2.4 million, which represents 45.6% of total non-accrual loans as of that date. Two of the loans were reviewed on an aggregate basis along with the other loans held for investment at the mortgage segment.