Waterstone Financial Inc. (WSBF) is a diversified financial services company that has navigated the ups and downs of the economy with a balanced approach. Founded in 1921, the company has evolved from a community bank to a multi-faceted institution serving both retail and commercial customers across its community banking and mortgage banking segments.
Business Overview and History Waterstone Financial, Inc. was originally organized in 2013 as the holding company for WaterStone Bank SSB. The company's roots trace back to 1921 when WaterStone Bank was first established. In 2014, Waterstone Financial completed a mutual-to-stock conversion of its predecessor company, Lamplighter Financial, MHC, becoming a publicly traded company listed on the NASDAQ exchange. This transition allowed the company to access capital markets and pursue growth opportunities more effectively.
The company operates through two distinct business segments: Community Banking and Mortgage Banking. The Community Banking segment provides a full range of financial services to customers through 14 branch locations in southeastern Wisconsin. This includes consumer and business banking products and services such as lending solutions, deposit accounts, and investment services. The Mortgage Banking segment, conducted through the company's wholly-owned subsidiary Waterstone Mortgage Corporation, originates residential mortgage loans primarily for sale in the secondary market. Waterstone Mortgage Corporation has expanded its footprint over the years, now operating 66 offices across 26 states.
Throughout its history, Waterstone Financial has faced various challenges common to the banking industry, including navigating economic cycles, changes in regulations, and adapting to technological advancements. Despite these challenges, the company has maintained a strong capital position and asset quality. A significant strategic decision in the company's history was the acquisition of Waterstone Mortgage Corporation in 2006, which expanded its operations into mortgage banking and contributed to its diversified business model.
Financial Performance and Ratios Financials Waterstone Financial's financial performance has been mixed in recent years, reflecting the challenges faced by the banking and mortgage industries. For the fiscal year ended December 31, 2024, the company reported net income of $18.7 million, or $1.01 per diluted share, compared to net income of $9.4 million, or $0.46 per diluted share, in the prior year. This represents a significant year-over-year improvement, driven by the company's efforts to optimize its operations and navigate the evolving market conditions.
The company's total revenue for the fiscal year 2024 was $135.5 million. In the most recent quarter (Q4 2024), Waterstone Financial reported revenue of $48.1 million and net income of $5.2 million. The company experienced substantial year-over-year revenue growth of 52.5% in Q4 2024 compared to Q4 2023, primarily driven by a $26.6 million, or 1.3%, increase in mortgage loan origination volume.
The company's key financial ratios showcase its financial strength and prudent management. As of December 31, 2024, Waterstone Financial maintained a strong capital position, with a total risk-based capital ratio of 20.9% and a Tier 1 leverage ratio of 16.0%. These ratios exceed the well-capitalized thresholds set by regulatory authorities, providing the company with a solid foundation to withstand potential economic headwinds.
Liquidity The company's liquidity position remains robust, with a cash and cash equivalents balance of $39.8 million as of December 31, 2024. Additionally, Waterstone Financial's net interest margin, a crucial metric for banks, stood at 2.0% for the fiscal year 2024, indicating its ability to generate stable interest income.
The company's debt-to-equity ratio is 1.31, reflecting a moderate level of leverage. Waterstone Financial has access to additional liquidity sources, including FHLB advances and the ability to utilize short-term repurchase agreements to fund operations. These available credit lines provide flexibility in managing the company's liquidity needs.
Operational Highlights and Challenges Waterstone Financial's diversified business model has been a key strength, allowing the company to navigate the challenges faced by the banking and mortgage industries. The Community Banking segment has demonstrated consistent performance, with steady loan growth and deposit gathering efforts. In 2024, the company reported a 1.0% increase in total loans held for investment, driven by growth in multi-family, construction, and commercial real estate loan categories.
For the year ended December 31, 2024, the Community Banking segment generated net interest income of $48.00 million and noninterest income of $5.30 million. Noninterest expenses for the segment totaled $31.74 million, resulting in pre-tax income of $21.68 million. Total assets for the Community Banking segment were $2.44 billion as of December 31, 2024.
The Mortgage Banking segment has faced headwinds in recent years, as rising interest rates and market volatility have impacted mortgage origination volumes and profit margins. However, the company has taken measures to optimize its mortgage operations, including streamlining its cost structure and focusing on higher-margin product offerings. In 2024, the Mortgage Banking segment reported a 7.4% increase in non-interest income, reflecting the company's efforts to adapt to the changing market environment.
For the year ended December 31, 2024, the Mortgage Banking segment originated $2.15 billion in mortgage loans held for sale, representing a 1.3% increase from the prior year. This increase was driven by a 128.5% jump in refinance loan originations, partially offset by a 4.1% decline in purchase loan originations amid low housing inventory. The segment generated $84.25 million in noninterest income and had noninterest expenses of $80.44 million, resulting in pre-tax income of $1.89 million. Total assets for the Mortgage Banking segment were $177.88 million as of December 31, 2024.
Waterstone Financial has also been proactive in addressing cybersecurity risks, a growing concern for financial institutions. The company has invested in robust information security measures and implemented comprehensive risk management protocols to protect its customers' data and assets.
Geographic Markets Waterstone Financial primarily operates in the Milwaukee, Wisconsin metropolitan area. Its Community Banking segment serves customers through 14 branch locations in Milwaukee, Washington, and Waukesha counties. The Mortgage Banking segment, however, has a broader reach, with 66 offices across 26 states and the ability to lend in 48 states.
Guidance and Outlook In its most recent financial reporting, Waterstone Financial provided a cautiously optimistic outlook for the coming year. The company expects continued loan growth in its Community Banking segment, driven by its focus on commercial and multi-family real estate lending. However, the Mortgage Banking segment may continue to face headwinds, as the mortgage industry navigates the challenges posed by rising interest rates and economic uncertainty.
To mitigate these challenges, Waterstone Financial is committed to further optimizing its operations, enhancing its digital capabilities, and exploring new opportunities for growth and diversification. The company's strong capital position and liquidity provide a solid foundation to weather any potential economic storms and capitalize on future opportunities.
Conclusion Waterstone Financial's resilience and adaptability have been tested in recent years, as the banking and mortgage industries have navigated a complex and ever-changing landscape. However, the company's diversified business model, prudent risk management, and strategic initiatives have positioned it to weather these challenges and emerge stronger.
As Waterstone Financial continues to evolve and adapt, its ability to serve the needs of its community, commercial customers, and mortgage borrowers will be key to its long-term success. Investors should closely monitor the company's progress in executing its strategic plans and its ability to navigate the ongoing economic uncertainties. With its solid financial foundation and experienced management team, Waterstone Financial appears well-equipped to capitalize on future growth opportunities and deliver value to its shareholders.