Waterstone's Mortgage Unit Swings to a Pre-Tax Loss

The Tip Desk · November 13, 2026 · 3 min read

Mortgage Banking posted a $754,000 pre-tax loss as originations fell to $509.7 million and sales margins compressed, while Community Banking net interest income hit a record $16.0 million.

Waterstone Financial, Inc. (WSBF), the savings-and-loan holding company for WaterStone Bank, reported net income of $6.2 million, or $0.36 a diluted share, for the quarter ended September 30, 2026, down from $7.9 million, or $0.45 a share, a year earlier.

The decline tracked a swing in the Mortgage Banking segment. That unit posted a pre-tax loss of $754,000, compared with $1.3 million of pre-tax income in the year-ago quarter. A year earlier the segment had still earned $1.3 million pre-tax; in the immediately preceding quarter it had generated $1.6 million of pre-tax income.

Loan originations fell to $509.7 million, down $29.7 million, or 5.5%, from $539.4 million a year earlier. Chief Executive Officer William Bruss said origination volume was hindered by a significant jump in mortgage rates. Gross margin on loans sold compressed to 3.48% from 3.87% a year earlier, a 10.3% decline. The company said the drop was driven by lower sales margins as secondary-market investors remained concerned about elevated long-term rates. Mortgage banking noninterest income decreased $2.8 million, or 13.4%, to $18.2 million. Purchase activity accounted for 90.4% of originations.

Community Banking, by contrast, posted a record quarterly net interest income of $16.0 million, up $1.4 million, or 9.6%, from $14.6 million a year earlier. Bruss said the increase was primarily due to a reduction in average cost of funds, driven in part by continued growth in average transaction deposits. Segment pre-tax income was $8.3 million.

Consolidated net interest margin expanded 3 basis points sequentially to 3.06% from 3.03% in the quarter ended June 30, 2026, after 6 basis points of expansion in the second quarter. The company attributed the latest move to a decrease in the weighted average cost of deposits and increases in mortgage-related and debt securities yields. Average loans held for investment totaled $1.70 billion, up $18.5 million from the prior quarter, with multi-family mortgages offsetting a decrease in single-family mortgages. Average core retail deposits rose $14.5 million, or 4.3% annualized, to $1.35 billion, led by money-market balances.

Consolidated credit quality deteriorated. Nonperforming assets were 0.55% of consolidated total assets at September 30, 2026, versus 0.30% at June 30, 2026. Past due loans were 0.81% of consolidated total loans. The company said the increase was related to one significant relationship previously identified as substandard. Community Banking past due loans totaled $11.7 million. The segment recorded an $83,000 credit on funded loans, which the company said was primarily due to a decrease in commercial real estate external qualitative risk factors offset by a $305,000 collateral-dependent reserve for a loan previously classified as substandard. The provision on unfunded commitments was $571,000, which the company tied to higher construction and commercial real estate loans in the pipeline. Consolidated provision for credit losses was $443,000.

Book value per share fell $0.24 to $19.29, including about $0.46 of additional available-for-sale losses as treasury rates rose, after a $0.51 increase in the prior quarter. The company declared a $0.17 dividend a share. Bruss said the company remains in a strong capital position.