Waterstone Financial, Inc. ($WSBF)

- Good morning, and welcome to the Annual Meeting of Shareholders of Waterstone Financial, Inc. My name is Bill Bruss, President, Chief Executive Officer and Secretary of Waterstone Financial, Inc. and WaterStone Bank and the Secretary of the annual meeting. Through the course of today's meeting, you will hear me refer to Waterstone Financial, Inc. as the company. The company's 2026 annual meeting is being conducted virtually by webcast and audio conference. The annual meeting will please come to order. Participating with me at the meeting is Mark Gerke, Chief Financial Officer and Executive Vice President of the Company and WaterStone Bank. I would like to welcome the directors of the company in attendance at the Annual Meeting: Patrick Lawton, Chairman; Ellen Bartel; Douglas Gordon; Molly Mulroy; Laura Piotrowski, Stephen Schmidt and Derek Tyus. We have made available on the virtual meeting site the agenda and the rules of conduct for the meeting. If you would like to discuss a matter not on the agenda, I encourage you to contact an officer or director of the company after the meeting. We provided an opportunity to shareholders to submit questions in advance of the annual meeting, and questions will be addressed by management prior to adjournment. Although we will take a vote on the matters to be considered at the annual meeting in a few moments, any registered shareholder wishing to vote their proxy may do so electronically during the meeting. If you have already voted your proxy or proxies, you need not vote again unless you wish to make a change. The Board of Directors has previously appointed Denise Mihaljevic to act as the inspector at the annual meeting and at any adjournments and to count and examine all voting. The Inspector's report will be attached to the minutes of the annual meeting. As Secretary, I have delivered to the inspector a list of the shareholders of the company entitled to vote at the annual meeting, arranged in alphabetical order as of the close of business on March 25, 2026, the record date for voting. The records of the company show that there are 18,161,733 outstanding votes entitled to be cast at this annual meeting of which 9,080,867 represent a majority. We have previously received confirmation that the notice regarding the availability of proxy materials for the shareholder meeting was mailed on or about April 9, 2026 to each shareholder of record as of the close of business on the record date. Copies of the affidavit of distribution with documents attached will be attached to the minutes of this annual meeting. The list of shareholders and all proxies, which have been received were previously delivered to the inspector. Substantially more than a majority of the total outstanding votes entitled to be cast at the annual meeting are present in person or by proxy. The inspector is making an exact count and will submit a formal report on the number of shares present or represented during the course of the annual meeting. A quorum is declared present, subject to confirmation of that fact by the inspector in her report. The business to be acted upon at the annual meeting, as stated in the notice of annual meeting is as follows: one, the election of 3 directors of the company; two, ratification of the company's selection of Forvis Mazars LLP as its independent registered public accounting firm; three, approving on an advisory and nonbinding basis, the resolution ratifying the approval of the executive compensation described in the company's proxy statement; and four, approving on an advisory and nonbinding basis, the frequency of future advisory votes on executive compensation. In order to save time at this meeting, we have arranged the proceedings so that a vote will not be taken until all items have been moved and seconded. Again, registered shareholders who are attending the annual meeting by webcast do have the opportunity to vote their shares during the meeting. If you have already voted by proxy, you need not vote during the meeting. The first item of business to be voted upon is the election of 3 directors of the company. The directors to be elected are to serve for 3-year terms and until their respective successors have been elected and qualified. The Board of Directors has nominated Molly Mulroy, Stephen Schmidt and Derek Tyus to serve as directors. Each of the nominees are currently members of the Board of Directors and the nominees are prepared to serve if elected. The chair will entertain a motion that the proposal to elect the 3 directors be adopted.

I so move.

I second the motion.

The second item to be acted on is the ratification of the company's selection of Forvis Mazars LLP as its independent registered public accounting firm for 2026. The Chair will now entertain a motion to ratify Forvis Mazars LLP as the company's registered independent public accounting firm.

I so move.

I second the motion.

The third item to be acted on is the ratification of our executive compensation as described in the proxy statement. The Chair will now entertain a motion to ratify our executive compensation.

I so move.

I second the motion.

The fourth item to be acted on is a proposal as to the frequency that shareholders will vote on our executive compensation. The Chair will now entertain a motion to ratify a say-on-pay advisory vote on our executive compensation, either annually, every 2 years or every 3 years.

I so move.

I second the motion.

The vote will now be taken on proposals 1, 2, 3 and 4. Will anyone who wishes to vote electronically do so now. If you have already voted your proxy or proxies, you do not need to vote now unless you wish to make a change. I will pause for 2 minutes to allow an opportunity for electronic voting. [Voting]

Two minutes have passed, and I declare the voting closed on proposals 1 through 4. I would next like to introduce our Chief Financial Officer, Mark Gerke, who will report on our progress in 2025. Mark?

Thank you, Bill. Good morning, and thank you to each shareholder for joining us this morning. We want to spend a few minutes to walk through the results of operations for the year 2025. Slide #6 displays our consolidated earnings performance over the past 4 years. The red bars represent consolidated net income and the blue line represents consolidated earnings per share. During 2025, we generated $26.4 million in net income, a 41% increase compared to 2024. 2025 earnings per share totaled $1.48 a share, which amounted to a 47% increase compared to the prior year. By either measure, we achieved a significant improvement compared to 2024. Slide #7, please. Peeling back a layer, this slide displays the net results of operations for our 2 operating segments. The Community Banking segment is represented by the blue bars, and the Mortgage Banking segment is represented in red. The Community Banking segment, which encompasses our local consumer and commercial lending teams as well as retail deposit generation at our 14 Milwaukee area branches generated just shy of $25 million in net income during 2025. This equates to a 46% increase from the prior year and represents a return to a normal earnings profile compared to a tougher 2023 and 2024. The Mortgage Banking segment represented by the red bar encompasses our residential mortgage origination teams that operate out of locations in 26 states. This is a transaction-based business in which we are earning fees on loans originated and sold to investors. After 2 very tough years in 2022 and 2023, we have posted back-to-back years with profit of $1.4 million. These past 2 years are reflective in an industry that has experienced improvement but still faces challenges due to higher mortgage rates, general home affordability and housing inventory. We wanted to provide a bit more color on each segment, and we will start on the Community Banking segment. As is the case for most community banks, our earnings are primarily driven by 4 factors: net interest income, growth in terms of loans and deposits, credit quality and expense management. Slide #8, please. As we discuss net interest margin, we must first discuss the interest rate environment. Following the steep interest rate hikes during 2022 and 2023 as the Federal Reserve worked to fight inflation, we did see decreases in the federal funds rate in late 2024 and 2025. Slide #9, please. The following that 2-year decline in net interest margin, driven by higher federal funds rates in which increased our cost of funds, we began to see recovery during 2025, aided in part by those interest rate cuts by the Federal Reserve, our margin improved from a low point of 2.17% in 2024 and 2.68% during 2025. I will note we've experienced further improvement to just shy of 3% during the first 3 months of 2026. Slide #10, please. This next slide displays our primary drivers of net interest margin. Our weighted average loan rates are displayed in red and weighted average deposit rates in green. Beginning in 2023 as the Fed increased rates, the pace of deposit pricing far outpaced the rate of repricing on our loans and our margin began to compress. The driver in that regard is the deposit holders generally look for short durations while our loans tend to be 5 years in term or longer. During 2025, we started to experience the benefit of recent rate reductions by the Federal Reserve, both same short-term deposit borrowings that rapidly reprice in prior years now began to reprice lower. As a result of that, an increasing loan and investment security rates, our net interest margin, again, grew from 2.17% in 2024 to 2.68% in 2025. Slide #11, please. So in addition to interest rate movements, our net interest income is driven by both loan growth and deposit growth. This slide exhibits the past 3 years of quarterly loan growth. You will note we've achieved steady growth in terms of commercial loans. This culminated with $51 million in loan growth during fiscal 2025. With respect to consumer-purpose loans after achieving a high watermark in late 2023, we have experienced runoff with respect to this segment as loan paydowns and payoffs have outrun loan originations. Slide #12, please. To fund continued loan growth, it's important that we continue to achieve growth in retail deposits. That growth comes from both new customer acquisition as well as growing the wallet share of our existing customers. This slide exhibits the past 3 years of quarterly deposit growth along with our weighted average cost of deposits. We have achieved in excess of over $100 million in deposit growth over the past 2 years and $61 million in growth during 2025 alone. Slide #13, please. One of the keys to our continued success is our ability to grow core deposits. We define a core deposit as any checking, savings or money market account. This chart displays end-of-year checking balances in blue and money market and savings in orange over the past 12 years. We've achieved steady growth over this time frame. Like all banks, we captured a lot of deposits during the pandemic and then experienced the measure of outflow as consumers spent at higher levels or simply moved to a rate-based certificate of deposit to achieve higher interest rates. Over the past 12 years, we have sustained strong growth in terms of core deposits and this culminated with $50 million in growth during fiscal 2025. Slide 14, please. In addition to interest rate movements and balance sheet growth, the other major key to our profitability is asset quality. First common metric relative to asset quality is nonperforming assets to total assets. Our continued focus on credit quality has allowed us to achieve metrics as represented in the blue line that are better than the average Wisconsin Bank is represented in orange. At December 31, 2025, we held approximately $6 million of loans that were placed on nonaccrual status. And just over $400,000 in real estate that had been foreclosed upon from a prior nonperforming borrower. Both of these figures are very low relative to a loan portfolio that exceeds $1.6 billion. Slide 15, please. The net common asset -- second common asset quality metric is net charge-offs to average loans. Again, we have performed better than the average Wisconsin Bank over the past 4 years. I would note that we're one of very few banks that have actually experienced a cumulative net recovery over that same time span. Both of these metrics are something we take a great deal of pride in. The last of our 4 factors that really drive earnings for us is expense management. The ratio of noninterest expense to average assets is one of the more effective measures to compare expense management across the peer group. Our noninterest expense amounted to 1.43% of bank assets during fiscal 2025. This is well below our peers in the state of Wisconsin, and that is a positive. I would add that we do need to outperform our group given our deposit mix. We do have a smaller branch network and still rely more heavily on term deposits. So as rates increase or interest expense will exceed our peers as we saw in 2022 and 2023. So we must maintain a laser focus on expenses. Our balance moving forward is to invest in the right areas to achieve core deposit growth at a rate that exceeds the expense increase. And next, we'll dive into the Mortgage Banking segment. As highlighted on an earlier slide after a very tough 2022 and 2023, during 2025, we achieved our second straight year -- profitable year, earning $1.4 million in net income. And while we are pleased to have stabilized at a profitable level, the industry as a whole still faces challenges. I wanted to start a discussion with a few of those factors. Prospector's interest rates and the impact on affordability after exceeding 7% on a 30-year fixed rate mortgage during 2024 that rate did decrease throughout 2025 and ended up in the low 6% range. This drop did help lift consumer demand for refinance mortgages during 2025 for both our segment and the industry in general. Next slide, please. As it relates to the mortgage purchase loan market, which is our area of focus, the other headwind that we've been experiencing is continuing low levels of housing inventory. So this chart shows the number of U.S. homes listed for sale. You would see we did experience an increase during 2025. However, we still remain below historical norms. Slide 18, please. This slide reflects mortgage origination volumes for the industry as a whole for the past 4 years. Purchase volumes are represented in blue and refinance in orange. After lighter overall volumes in '23 and '24, 2025 did experience a 15% increase in volumes. That increase was made up of a 5% increase in purchase mortgage and a 40% increase in refinance volume and pointing to my prior comments about a drop in interest rates during the year and opening a market for a little more refinance activity. Slide 19, please. During 2025, we originated approximately $2 billion in mortgage loans. Purchase originations were down 5% and refinance volumes were up 12%. Overall volumes were relatively flat, and the same was true of our margin. Loan sale margins were 3.86% during 2025 and 3.92% during 2024. Slide 20, please. So in light of continued market challenges, we continue to respond to current levels of consumer demand and assess our own capacity. As a result of that, over the past 2 years, our non-originator staffing levels were reduced by 22%. We continue to be focused on retaining and attracting high-producing loan officers and to add to our sales force so that we are in a good position to take advantage as the market improves. Slide 21, please. As we move forward, we look to stay true to who we have been. We want to continue to maintain a laser focus on purchase business as has been the case in the past. As our data shows, we have always been an operation that has exceeded the market in favor of purchase business. It's more stable, easier to plan for changes and from an operational standpoint and most importantly, more profitable the refinance business. Slide 22, please. We've spent the majority of our time talking about earnings and operations but wanted to end with a discussion of capital. Since our second step stock offering in 2014, we have been a heavily capitalized institution. We have worked to leverage that capital through growth and continue to be committed to returning earnings and liquidity to shareholders through dividends and buybacks. Over the past 4 years, we have generated just shy of $74 million in net income and have returned $157 million to shareholders in dividends and share repurchases. And while we're focused on shareholder liquidity, also important to note that our strategy has been accretive to book value, with book value per share growing 14% from $16.71 and $19.03 at the end of 2025. Slide 23, please. As it relates to dividends, we continue to maintain a very high dividend payout ratio. During 2025, the $0.60 per share dividend represented 41% of earnings per share. I would note that since our second step offering in 2014, we have paid out $9.53 in dividends per share, which represents 62% of earnings per share during that same time frame. During 2026, we were pleased to announce an increase in our quarterly dividend to $0.17 per share. This 13% increase in our quarterly dividend reflects a return to normal earnings levels and a continued commitment to total shareholder return. That concludes my prepared remarks. But before I turn it over to Bill, I wanted to thank you for not only being a shareholder, but also for joining us today. So thank you. Bill?

Thank you, Mark. I would like to comment briefly on our continued support for the communities we serve. As is reflected on Slide 24, in 2025, with giving focus on organizations that support education, women and children, community development and veterans initiatives, WaterStone Bank contributed more than $830,000 to local nonprofits and schools. As importantly or more importantly, our employees volunteered their time over 1,490 hours in support of those organizations. No shareholders submitted questions. So we'll now turn our attention to the results of the voting on our 4 items of business. The Inspector has completed her count and has certified and reported as follows: I hereby certify the following: one, Molly Mulroy, Stephen Schmidt and Derek Tyus, the nominees to serve on the Board of Directors of Waterstone Financial, Inc. have each received a plurality of the votes cast at the annual meeting and are hereby elected as Directors to Waterstone Financial, Inc. Two, the appointment of Forvis Mazars LLP as Waterstone Financial Inc's independent registered accounting firm has been ratified by a majority of the votes cast at the annual meeting. Three, the nonbinding advisory vote regarding ratification of the company's executive compensation as set forth in the April 9, 2026 proxy statement received a majority of votes in favor of ratification. Four, the nonbinding advisory vote regarding the frequency in which stockholders will vote on the company's executive compensation received a majority of votes in favor of holding such vote on an annual basis. Five, that at all times during this meeting, more than a majority of the shares outstanding and entitled to vote at the annual meeting were represented in person or by proxy, and consequently, a quorum has been in attendance for the entirety of the annual meeting, signed, Denise Mihaljevic, Inspector of Election. The report confirms that a quorum is and has been in attendance at the annual meeting for all purposes. The report also shows that with respect to the first item of business, a plurality of the votes have been cast in favor of the election of Molly Mulroy, Stephen Schmidt, and Derek Tyus as Directors of the company. With respect to the second item of business, the majority of the votes have been cast in favor of the company's selection of Forvis Mazars, LLP as the company's registered independent public accounting firm. With respect to the third item of business, a majority of the votes have been cast in favor of the ratification of our executive compensation. And with respect to the fourth item of business, a majority of votes have been cast in favor of an annual nonbinding stockholder vote on the company's executive compensation. The certificate and report of inspector of election has been accepted and approved and will be attached to the minutes of the annual meeting. There being no further business to come before the annual meeting, a motion to adjourn is an order.

I move that the annual meeting be adjourned.

I second the motion.

Those in favor, signify by saying aye.

Aye.

Aye.

Those opposed, say no. The motion is carried, and the annual meeting is adjourned. Thank you for your attendance and participation today.