Waterstone Financial's Q2 Earnings Up Y/Y on Loan Yield Gains

The company’s net income of $8.5 million indicated a 10.4% rise from $7.7 million in the year-ago quarter. 

Net interest income increased 16.8% year over year to $16 million, as total interest income edged up 3.1% to $29.6 million while interest expense declined 9.4% to $13.6 million. The improvement reflected stronger loan yields and lower funding costs, which helped drive net interest margin higher.

Community Banking Segment Drives Earnings Growth

Waterstone Financial’s Community Banking segment remained the primary contributor to quarterly results, benefiting from stronger margins and deposit growth. Segment pre-tax income increased to $9 million in the second quarter of 2026 from $7.6 million in the prior-year period, representing an 18.2% increase. Net interest income reached a record quarterly level of $15.8 million, up 16.1% from $13.6 million a year earlier.

Net interest margin expanded to 3.03% from 2.60% in the prior-year quarter, an increase of 43 basis points. Management attributed the improvement to higher loan yields, lower borrowing costs and reduced deposit costs. 

Average loans held for investment totaled $1.7 billion during the quarter, slightly above year-ago period's number. Growth in multi-family mortgages offset a decline in single-family mortgages. Average core retail deposits increased 2% year over year to $1.3 billion, supported by growth in money market and demand deposit balances.

Mortgage Banking Faces Margin Pressure

The Mortgage Banking segment delivered higher loan origination volumes but experienced lower profitability due to weaker sales margins. Segment pre-tax income declined to $1.6 million from $2 million in the second quarter of 2025, a decrease of 20%.

Loan originations increased 5.6% year over year to $621.8 million from $588.8 million. However, mortgage banking non-interest income declined slightly to $22.4 million from $22.6 million, while gross margin on loans sold fell to 3.60% from 3.84%. The company noted that secondary market investors remained cautious due to elevated long-term interest rates, pressuring sales margins.

Management Commentary and Financial Position

CEO William Bruss highlighted the company’s strong quarterly performance, pointing to the highest quarterly net interest margin since the quarter ended Dec. 31, 2022. He also noted that the company increased book value per share by 51 cents during the quarter through continued earnings generation and share repurchases.

Waterstone Financial reported improving profitability ratios during the quarter. Annualized return on average assets increased to 1.52% from 1.39% in the second quarter of 2025, while annualized return on average equity improved to 9.65% from 9.04%. Book value per share increased to $19.53 as of June 30, 2026, from $19.03 at Dec. 31, 2025.

Asset quality remained stable. Nonperforming assets as a percentage of total assets improved to 0.30% from 0.37% a year earlier, while past-due loans as a percentage of total loans stood at 0.63% compared with 0.69% in the prior-year period.

Shareholder Returns and Capital Actions

Waterstone continued returning capital to shareholders during the quarter. The company declared a quarterly dividend of 17 cents per common share and repurchased approximately 200,000 shares at a total cost of $3.7 million, including federal excise tax. Overall, the company returned $6.5 million to shareholders through dividends and share buybacks during the quarter.

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