Waterstone Financial, Inc. (WSBF Quick QuoteWSBF - Free Report) shares have gained 21.5% in the past six months against the industry’s 1.8% decline. The company has outperformed other industry players, including Citizens Community Bancorp, Inc. (CZWI Quick QuoteCZWI - Free Report) and Northpointe Bancshares, Inc. (NPB Quick QuoteNPB - Free Report) . Shares of CZWI and NPB have posted increases of 19.9% and 14.8%, respectively, in the same time frame. WSBF benefits from loan portfolio growth, improved net interest margin, strong capital ratios, and enhanced operational efficiency, especially in cost control measures.

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A Key Look Into WSBF’s Business Operations

Waterstone Financial, a Maryland corporation, became the holding company of WaterStone Bank following a corporate reorganization. Headquartered in Wauwatosa, WI, the company operates as a community-focused financial institution through WaterStone Bank and its mortgage subsidiary. WaterStone Bank provides traditional banking services through multiple branches in southeastern Wisconsin, while its mortgage subsidiary operates in various states, originating loans primarily for sale in the secondary market. The Bank's core lending includes residential and commercial real estate, along with construction, business and consumer loans. It funds lending operations through deposits and other sources. The company’s investment activities are managed by a subsidiary based outside Wisconsin.

Waterstone Financial’s Key Tailwinds

Waterstone Financial is experiencing several tailwinds that are positively influencing its financial performance and long-term strategic position. One significant factor is the growth and diversification of its loan portfolio, which reached $1.71 billion as of Sept. 30, 2025, up from $1.68 billion at the end of 2024. The company continues to benefit from its emphasis on multi-family and commercial real estate lending, which comprises substantial portions of the portfolio. These segments are generally more resilient and yield-accretive. 

The company’s net interest income and net interest margin have also improved meaningfully. For the third quarter of 2025, net interest income rose to $14.7 million, a $3.2 million increase compared to the same quarter in 2024. This was largely due to a 19-basis-point improvement in the yield on loans and a more favorable asset mix. At the same time, WSBF significantly reduced its borrowing costs, aided by a $159.6 million reduction in average borrowings and lower rates on new funding sources. As a result, net interest margin expanded from 2.14% in the third quarter of 2024 to 2.76% in the third quarter of 2025. 

Waterstone Financial’s strong capital position further supports its growth prospects and shareholder return strategies. As of Sept. 30, 2025, the company reported a total capital ratio of 20.46% and a Common Equity Tier 1 capital ratio of 19.45%, well above regulatory minimums. This capital surplus provides the company with both a cushion against potential market volatility and the flexibility to continue strategic initiatives such as loan portfolio expansion, share repurchases, and dividend distributions. In fact, in December 2025, the board declared a 15 cents per share quarterly dividend, reinforcing the company’s commitment to returning capital to shareholders while maintaining balance sheet strength.

Operational efficiency is another area where Waterstone is gaining traction. The company has executed well on cost control, especially within its mortgage banking segment, which continues to face volume pressures. Compensation and benefits expenses declined $0.2 million in the third quarter of 2025 compared to the prior year, driven by reduced headcount and lower commissions tied to originations. Additionally, the community banking segment saw a reduction in health insurance claims, resulting in further savings.

Challenges Persist for WSBF’s Business

Waterstone Financial is facing several notable headwinds that have impacted its operations. The mortgage banking segment experienced a decline in loan origination volume — down $19.3 million year over year — and tighter margins, which led to lower mortgage banking income despite operational adjustments. Additionally, the company continues to manage elevated levels of unrealized losses in its investment portfolio due to shifts in interest rates. Regulatory pressures, competitive deposit markets and changing macroeconomic conditions, including potential rate volatility and consumer behavior shifts, also pose ongoing challenges.

Waterstone Financial’s Valuation

The company is cheaply priced compared with the industry average. Currently, WSBF is trading at 12.63X trailing 12-month price/earnings value, below the industry’s average of 12.99X. The metric also remains lower than one of the company’s peers, Citizens Community Bancorp (14.2X), but remains higher than that of Northpointe Bancshares (9.51X).

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Conclusion

Waterstone Financial’s strong capital ratios, expanding net interest margin and disciplined cost controls — especially in mortgage banking — underscore its strategic resilience. Growth in higher-yielding commercial real estate loans also supports long-term earnings. However, headwinds like lower mortgage volumes, unrealized investment losses and a competitive deposit environment remain.

Strong fundamentals coupled with WSBF’s undervaluation present a lucrative opportunity for investors to add the stock to their portfolio.