FS Bancorp (FSBW) risk factors, FY2025 10-K

Risks Related to Macroeconomic Conditions

1. 01Our business may be adversely affected by downturns in the national economy and in the economies in our market areas74% rewritten
2. 02Reduction in our low-cost or noninterest-bearing deposits, adversely affecting our funding costs and liquidity90% rewritten
3. 03Monetary policy, interest rate volatility, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations 98% rewritten

Risks Related to our Lending Activities

1. 04Our loan portfolio possesses increased risk due to a large percentage of consumer loans45% rewritten
2. 05Our business could suffer if we are unsuccessful in making, continuing, and growing relationships with home improvement contractors and dealers26% rewritten
3. 06A significant portion of our business involves commercial real estate lending, which is subject to various risks that could adversely impact our results of operations and financial condition
4. 07Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value
5. 08Our residential construction lending is subject to various risks that could adversely impact our results of operations and financial condition20% rewritten
6. 09Our residential mortgage warehouse lending program is subject to various risks that could adversely impact our results of operations and financial condition
7. 10If our ACL on loans is not sufficient to cover actual loan losses, our earnings could be reduced
8. 11Our business may be adversely affected by credit risk associated with residential property52% rewritten
9. 12Severe flooding in Western Washington and Oregon in November 2025, as well as the increasing frequency and severity of flood and wildfire events, could materially and adversely affect the credit quality of our loan portfolio and the adequacy of our allowance for credit lossesNew
10. 13Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition and could result in losses in the future

Risk Related to Changes in Market Interest Rates

1. 14Changes in interest rates may reduce our net interest income and may result in higher defaults in a rising rate environment44% rewritten
2. 15We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. If we are unable to manage this risk effectively, our business, financial condition, and results of operations could be materially affected32% rewritten
3. 16Revenue from mortgage banking operations is sensitive to changes in economic conditions, decreased economic activity, a slowdown in the housing market, higher interest rates or new legislation and may adversely impact our financial condition and results of operations
4. 17Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates
5. 18If our hedging against interest rate exposure is ineffective, it could result in volatility in our operating results, including potential losses, which could have a material adverse effect on our results of operations and cash flows
6. 19Mark-to-market losses could reduce our stockholders’ equity

Risks related to the counterparty’s inability to fulfill obligations

1. 20Losses on interest rate hedging derivatives could adversely affect our business, financial condition and prospects, leading to decreased net income

Risks Related to Accounting Matters

1. 21We may experience future goodwill impairment, which could reduce our earnings
2. 22Our reported financial results depend on management ’ s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future

Risk Related to Regulatory and Compliance Matters

1. 23We may become subject to supervisory actions and enhanced regulation that could have a material adverse effect on our business, reputation, operating flexibility and financial condition
2. 24Climate change and related legislative and regulatory initiatives may materially affect the Company ’ s business and results of operations37% rewritten
3. 25Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions

Risks Related to Cybersecurity, Data, Fraud, Third Parties and Technology

1. 26We rely on other companies to provide key components of our business infrastructure
2. 27We are subject to certain risks in connection with our use of technology
3. 28Our current and future uses of Artificial Intelligence (AI) and other emerging technologies may create additional risks
4. 29We are subject to certain risks in connection with our data management or aggregation
5. 30Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes

Risks Related to Our Business and Industry Generally

1. 31Ineffective liquidity management could adversely affect our financial results and condition
2. 32Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be exceedingly high
3. 33The Company’s ability to pay dividends and make subordinated debt payments is subject to the ability of the Bank to make capital distributions to the Company
4. 34The markets in which the Company operates are subject to the risk of flooding, mudslides, and other natural disasters79% rewritten
5. 35Failure to align DEI and ESG efforts with the current legal framework could result in reputational harm, legal challenges, financial penalties, and limitations on government contracting. Private third-party ESG and DEI evaluations may further influence investor decisions, access to capital, and stakeholder perceptionNew