Waterstone Financial (WSBF) risk factors, FY2025 10-K

Risks Related to Regulatory Matters

1. 01We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank regulatory agencies
2. 02Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions
3. 03Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations52% rewritten
4. 04We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties
5. 05The Federal Reserve Board may require us to commit capital resources to support WaterStone Bank
6. 06We may become subject to enforcement actions even though non-compliance was inadvertent or unintentional

Risks Related to Interest Rates

1. 07Changing interest rates may have a negative effect on our results of operations35% rewritten
2. 08We experienced a continued shift in deposits from lower-cost (savings and NOW) accounts to higher-cost certificates of deposit. Although fed funds interest rate decreased in the past year, we continue to keep rates competitive in a challenging and competitive marketNew
3. 09Hedging against interest rate exposure may adversely affect our earnings

Risks Related to Economic Matters

1. 10Changes in economic conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline
2. 11Because most of our borrowers are located in the Milwaukee, Wisconsin metropolitan area, a prolonged downturn in the local economy, or a decline in local real estate values, could cause an increase in nonperforming loans or a decrease in loan demand, which would reduce our profits
3. 12Inflation can have an adverse impact on our business and on our customers54% rewritten
4. 13Significant changes to the size, structure, powers and operations of the federal government, changes to U.S. economic policies, and uncertainties regarding the potential for these changes may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial conditionNew
5. 14Further, the perception of the potential for additional, significant changes in federal regulatory or economic policy also has increased uncertainty and may exacerbate declines in investor and consumer confidence, which in turn may adversely impact financial markets and the broader economy of the U.SNew

Risks Related to Lending Matters

1. 15We intend to increase our commercial business lending, and we intend to continue our commercial real estate and multi-family residential real estate lending, which may expose us to increased lending risks and have a negative effect on our results of operations
2. 16Our allowance for credit losses may prove to be insufficient to absorb life-time losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations
3. 17We are subject to environmental liability risk associated with lending activities

Risks Related to Operational Matters

1. 18We rely heavily on certificates of deposit, which has increased our cost of funds and could continue to do so in the future
2. 19We may not be able to attract and retain skilled people
3. 20Loss of key employees may disrupt relationships with certain customers
4. 21Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks
5. 22Risks associated with system failures, interruptions, or breaches of cybersecurity could negatively affect our earnings
6. 23Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses
7. 24Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes
8. 25Fraud by merchants or others could have a material adverse effect on our business and financial conditionNew
9. 26The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operationsNew
10. 27We face funds transfer and payments-related risksNew
11. 28Our reliance on and integration of artificial intelligence (AI) and machine learning (ML) technologies expose us to various risks, including operational, data, regulatory, and reputational risks, which could materially affect our business and financial resultsNew
12. 29Data Security & Privacy: AI systems process sensitive customer data. Security breaches or unauthorized access to these systems could result in data theft, loss of intellectual property, and significant penalties, damaging customer trustNew
13. 30Reputational & Ethical Risk: Misuse of AI, biased outcomes, or privacy violations can harm our brand, erode customer confidence, and attract negative public attention, potentially affecting demand for our servicesNew
14. 31Our board of directors relies to a large degree on management and outside consultants in overseeing cybersecurity risk management
15. 32Our funding sources may prove insufficient to replace deposits at maturity and support our future growth
16. 33The soundness of other financial institutions could adversely affect us
17. 34Recently we have held larger levels of certificates of deposit, which has increased our cost of funds and could continue to do so in the future31% rewritten
18. 35Interruption of our customers’ supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans
19. 36Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations

Risks Related to Competitive Matters

1. 37Consumers may decide to use alternative options to complete financial transactions
2. 38Strong competition within our market areas may limit our growth and profitability
3. 39The grant of bank charters and special purpose fintech charters by the Office of the Comptroller of the Currency to fintech companies could present financial risk and market risk to us generally and the payments processing business specificallyNew

Risks Related to Mortgage Banking Operations

1. 40Secondary mortgage market conditions could have a material impact on our financial condition and results of operations
2. 41Changes in the programs offered by secondary market purchasers or our ability to qualify for their programs may reduce our mortgage banking revenues, which would negatively impact our non-interest income
3. 42If we are required to repurchase mortgage loans that we have previously sold, it could negatively affect our earnings

Risks Related to Environmental and Other Global Matters

1. 43Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers
2. 44Our business, financial condition, and results of operations could be adversely affected by natural disasters, health epidemics, and other catastrophic events

Risks Related to Accounting Matters

1. 45Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations
2. 46The need to account for certain assets at estimated fair value may adversely affect our results of operations
3. 47Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general
4. 48Changes in the valuation of our securities portfolio could adversely affect our profits
5. 49New lines of business or new products and services may subject us to additional risks
6. 50A lack of liquidity could adversely affect our financial condition and results of operations
7. 51Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks
8. 52Acquisitions may disrupt our business and dilute stockholder value
9. 53Various factors may make takeover attempts more difficult to achieve
10. 54Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on our operations, earnings and financial condition