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Item 1A. Risk Factors

2022-02-28 compared with 2021-03-02 · 356 added, 193 removed, 118 unchanged (82% of the section changed)

An investment in our securities is subject to risks inherent in our business and the industry in which we operate.

Before making an investment decision, you should carefully consider the risks and uncertainties described below and all other information included in this report.

The risks described below may adversely affect our business, financial condition and operating results.

In addition to these risks and the other risks and uncertainties described in Item 1, “Business-Forward Looking Statements” and Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results.

Before making an investment decision, you should carefully consider the risks and uncertainties described below and all other information included in this report, as well as other reports we file with the SEC.

The risks described below may adversely

affect our business, financial condition and operating results.

In addition to these risks and the other risks and uncertainties described in Item 1, “Business-Forward Looking Statements” and Item 7, “Management's Discussion and Analysis of Financial

Condition and Results of Operations,” there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or

operating results.

The value or market price of our securities could decline due to any of these identified or other risks.

Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to

anticipate results or trends in future periods.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.

Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.

While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, human capital and self-insurance, as described in more detail below.

Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business.

Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments.

If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers.

Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure.

In addition, we have unfunded commitments to extend credit to customers.

During a challenging economic environment like now, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact our liquidity.

Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default.

If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers to which we would have otherwise extended credit.

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future

developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has created extensive disruptions to the global economy and to the lives of individuals throughout the world.

Governments, businesses, and the public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus,

and legislation designed to deliver monetary aid and other relief.

While the scope, duration, and full effects of COVID-19 are continually evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic

activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.

If these effects continue for a prolonged period or result in sustained

economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding,

operations, interest rate risk, human capital and self-insurance, as described in more detail below.

Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s

Concern about the spread of COVID-19 has caused business slowdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, commercial property vacancy rates, reduced

profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments.

If the effects of COVID-19

result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans,

our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers.

Further, in the event of

delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation actions, such as foreclosure.

In addition, we

have unfunded commitments to extend credit to customers.

During a challenging economic environment like now, our customers are more dependent on our credit commitments and increased borrowings under these commitments could adversely impact

our liquidity.

Furthermore, in an effort to support our communities during the pandemic, we participated in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses are made and those loans are subject

to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default.

If the borrower under the PPP loan fails to

qualify for loan forgiveness, we are at the heightened risk of holding these loans at unfavorable interest rates as compared to the loans to customers to which we would have otherwise extended credit.

Strategic Risk.

Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities.

In recent weeks, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets.

Furthermore, many of the governmental actions have been directed toward curtailing household and business activity to contain COVID-19.

These actions have been rapidly expanding in scope and intensity.

For example, in many of our markets, local governments have acted to temporarily close or restrict the operations of most businesses.

Our success may be affected by a variety of external factors that may affect the price or marketability of our products and

services, changes in interest rates that may increase our funding costs, reduced demand for our financial products due to economic conditions and the various response of governmental and nongovernmental authorities.

In recent weeks, the

COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets.

Furthermore, many of the governmental actions have been directed toward curtailing

household and business activity to contain COVID-19.

The future effects of COVID-19 on economic activity could negatively affect the future banking products we provide, including a decline in originating of loans.

Operational Risk.

Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations.

We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties.

In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations uninterrupted as much as possible.

Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices.

The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk.

These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses.

Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet customer servicing

expectations and have a material adverse effect on our operations.

We rely on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information,

applications, payment systems and other services provided by third parties.

In response to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes to have our operations

uninterrupted as much as possible.

less reliable than in our offices.

Additionally, the productivity and availability of key personnel and other employees necessary to conduct business, and of third-party service providers who perform critical services, or otherwise may

cause operational failures due to changes in normal business practices necessitated by or issues with employee retention caused by the pandemic and related governmental actions.

The continuation of these work-from-home measures also

introduces additional operational risk, including increased cybersecurity risk.

These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure

and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a

security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss,

litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

Moreover, we rely on many third parties in our business operations, including the appraiser of the real property collateral, vendors

that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses.

In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services.

For example, loan origination could be delayed due to the limited availability of real estate appraisers for the collateral.

For example, loan origination could be delayed due to the limited availability of real estate appraisers

for the collateral.

Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those counties.

If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

Interest Rate Risk.

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19.

In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector.

Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in

interest rates caused by uncertainties stemming from COVID-19.

A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.

Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets.

Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic.

The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets.

Fluctuations in interest rates will impact both

the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income,

operating results, or financial condition.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent

of COVID-19’s effects on our business, operations, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home

arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic.

The uncertain future development of this crisis could materially and

adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Risks Related to Regulatory Matters

We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank regulatory agencies.

We are subject to extensive supervision, regulation, and examination by the WDFI, the Federal Deposit Insurance Corporation and the Federal Reserve Board.

We operate in a highly regulated environment and we are subject to supervision, examination and enforcement action by various bank

regulatory agencies.

We are subject to extensive supervision, regulation, and examination by the WDFI, the Federal Deposit Insurance Corporation and the

Federal Reserve Board.

As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities, and obtain financing.

This system of regulation is designed primarily for the protection of the Deposit Insurance Fund and our depositors, and not for the benefit of our stockholders.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that:

This system of regulation is designed primarily for the protection of the Deposit

Insurance Fund and our depositors, and not for the benefit of our stockholders.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination

activities and policies, including rules or policies that:

establish minimum capital levels;

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govern the classification of assets;

determine the adequacy of loan loss reserves for regulatory purposes;

determine the adequacy of loan loss reserves for regulatory

and establish the timing and amounts of assessments and fees.

Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors.

These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution.

A less than satisfactory rating may also prevent a financial institution, such as WaterStone Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, paying dividends, acquiring other financial institutions or establishing new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations.

Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions

relating to capital, asset quality, management, liquidity, earnings and other factors.

These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the

banking regulators against a financial institution.

A less than satisfactory rating may also prevent a financial institution, such as WaterStone Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets,

paying dividends, acquiring other financial institutions or establishing new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act

laws and regulations, and fair lending laws and regulations.

Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect

our business activities, including our ability to acquire other financial institutions or expand our branch network.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being

used for money laundering and terrorist activities.

If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S.

Treasury’s Office of Financial Crimes Enforcement Network.

These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.

require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.

Failure to comply with these regulations could result in fines or sanctions.

During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board.

During the last

year, several banking institutions have received large fines for non-compliance with these laws and regulations.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and

procedures may not be effective in preventing violations of these laws and regulations.

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal

Reserve Board.

An important function of the Federal Reserve Board is to regulate the money supply and credit conditions.

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government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank

loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.

The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material

The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and

regulations impose nondiscriminatory lending requirements on financial institutions.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions,

including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion.

Private parties may also have the ability to challenge an

institution’s performance under fair lending laws in private class action litigation.

Such actions could have a material adverse effect on our business, financial condition and results of operations.

The Federal Reserve Board may require us to commit capital resources to support WaterStone

Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary

bank and to commit resources to support such subsidiary bank.

Under the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding

company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank.

A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required

to borrow the funds or raise capital.

Thus, any borrowing or funds needed to raise capital required to make a capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of

Risks Related to Interest Rates

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Our earnings and cash flows are dependent on our net interest income and income from our mortgage banking operations.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.

Changes in market interest rates could have an adverse effect on our financial condition and results of operations.

Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowings costs.

Under these circumstances, we are subject to reinvestment risk to the extent we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities.

Interest rates are

highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.

Changes in market interest rates could

have an adverse effect on our financial condition and results of operations.

Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their

loans to reduce borrowings costs.

comparable to the interest rates on existing loans and securities.

Increases in interest rates can also have an adverse impact on our results of operations.

A portion of our loans have adjustable interest rates.

While the higher payment amounts we would receive on these loans in a rising interest rate environment may increase our interest income, some borrowers may be unable to afford the higher payment amounts, which may result in a higher rate of loan delinquencies and defaults, as well as lower loan originations, as borrowers who may qualify for a loan based on certain mortgage repayments, may not be able to afford repayments based on higher interest rates for the same loan amounts.

A portion of our loans have adjustable

interest rates.

rate of loan delinquencies and defaults, as well as lower loan originations, as borrowers who may qualify for a loan based on certain mortgage repayments, may not be able to afford repayments based on higher interest rates for the same loan amounts.

The marketability of the underlying collateral also may be adversely affected in a high interest rate environment.

Although we have implemented asset and liability management strategies designed to reduce the effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rate could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate models and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

See “Management’s Discussion and Analysis of Financial Condition" and "Quantitative and Qualitative Disclosures About Market Risk—Management of Market Risk.”

Although we have implemented asset and liability management strategies designed to reduce the effects of changes in interest rates on

our results of operations, any substantial, unexpected, prolonged change in market interest rate could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate models and assumptions likely may not

fully predict or capture the impact of actual interest rate changes on our balance sheet.

See “Management’s Discussion and Analysis of Financial Condition" and "Quantitative and Qualitative Disclosures About Market

Risk—Management of Market Risk.”

Risks Related to Lending Matters

We 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.

We 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.

We continue to focus on originating commercial business, commercial real estate and multi-family residential real estate loans.

These types of loans generally have a higher risk of loss compared to our one- to four-family residential real estate loans.

Commercial business loans may expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate.

types of loans generally have a higher risk of loss compared to our one- to four-family residential real estate loans.

Commercial business loans may expose us to greater credit risk than loans secured by residential real estate because the collateral

securing these loans may not be sold as easily as residential real estate.

In addition, commercial business and commercial real estate loans may also involve relatively large loan balances to individual borrowers or groups of borrowers.

These loans also have greater credit risk than residential real estate loans as repayment is generally dependent upon the successful operation of the borrower’s business.

also have greater credit risk than residential real estate loans as repayment is generally dependent upon the successful operation of the borrower’s business.

Also, the collateral underlying commercial business loans may fluctuate in value.

Some of our commercial business loans are collateralized by equipment, inventory, accounts receivable or other business assets, and the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use.

Multi-family residential real estate and commercial real estate loans involve increased risk because repayment is dependent on income being generated in amounts sufficient to cover property maintenance and debt service.

In addition, if loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our financial condition and results of operations.

We are subject to regulatory enforcement risk, reputation risk and litigation risk regarding our participation in the PPP, and we are subject to the risk that the SBA may not fund some or all PPP loan guarantees.

The CARES Act included the PPP as a loan program administered through the SBA.

Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to detailed qualifications and eligibility criteria.

Because of the short timeframe between the passing of the CARES Act and implementation of the PPP, some of the rules and guidance relating to PPP were issued after lenders began processing PPP applications.

Also, there was and continues to be uncertainty in the laws, rules and guidance relating to the PPP.

Since the opening of the PPP, several banks have been subject to litigation regarding the procedures used in processing PPP applications, and several banks have been subject to litigation regarding the payment of fees to agents that assisted borrowers in obtaining PPP loans.

In addition, some banks and borrowers have received negative media attention associated with PPP loans.

Although we believe that we have administered the PPP in accordance with all applicable laws, regulations and guidance, we may be exposed to litigation risk and negative media attention related to our participation in the PPP.

If any such litigation is not resolved in in our favor, it may result in significant financial liability to us or adversely affect our reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage caused by PPP-related litigation or media attention could have a material adverse impact on our business, financial condition, and results of operations.

The PPP has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators, and U.S.

Congressional committees.

State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling us to rely on borrower certifications, and take more aggressive action against us for alleged violations of the provisions governing the PPP.

Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition, and thereby adversely affect your investment.

We also have credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which we originated, funded or serviced loans, including any issue with the eligibility of a borrower to receive a PPP loan.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

our commercial business loans are collateralized by equipment, inventory, accounts receivable or other business assets, and the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable

may be uncollectible and inventories may be obsolete or of limited use.

Multi-family residential real estate and commercial real estate loans involve increased risk because repayment is dependent on income being generated in amounts sufficient to

cover property maintenance and debt service.

of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our financial condition and results of operations.

If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.

In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions.

In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

If the results of our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income.

Our emphasis on loan growth and on increasing our portfolio of commercial real estate loans, as well as any future credit deterioration, could require us to increase our allowance further in the future.

In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we

consider the effect of existing economic conditions.

In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other

assets serving as collateral for the repayment of many of our loans.

If the results of our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to

our allowance and would decrease our net income.

Our emphasis on loan growth and on increasing our portfolio of commercial real estate loans, as well as any future credit deterioration, could require us to increase our allowance further in the

In addition, any future credit deterioration, including as a result of COVID-19, could require us to increase our allowance for loan losses in the future.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan

losses or recognize further loan charge-offs.

Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our results of operations and financial condition.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with

respect to one or more of these properties.

During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans.

In doing so, there is a risk that hazardous or toxic substances could be found on these properties.

If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property.

Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.

In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards.

The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

In doing so, there is a risk that hazardous or toxic substances could be found on these

conditions or toxic substances first affected any particular property.

Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use

or sell the affected property.

In addition, future laws or regulations, or more stringent interpretations or enforcement policies with respect to existing laws and regulations may increase our exposure to environmental liability, and heightened

pressure from investors and other stakeholders may require us to incur additional expenses with respect to environmental matters.

Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on

nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards.

The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on

The foreclosure process may adversely impact our recoveries on

non-performing loans

The judicial foreclosure process is protracted, which

delays our ability to resolve non-performing loans through the sale of the underlying collateral.

The longer timelines have been the result of the economic crisis, additional consumer protection initiatives related to the foreclosure process,

increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.

These reasons and the legal and regulatory responses have

impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders.

This may result in a material adverse effect on collateral values and our ability to minimize its losses.

Risks Related to Operational Matters

We rely heavily on certificates of deposit, which has increased our cost of funds and could continue to do so in the future.

Our reliance on certificates of deposit to fund our operations has resulted in a higher cost of funds than would otherwise be the case if we had a higher percentage of demand deposits, savings deposits and money market accounts.

In addition, if our certificates of deposit do not remain with us, we may be required to access other sources of funds, including loan sales, other types of deposits, including replacement certificates of deposit, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank of Chicago and other borrowings.

Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on our certificates of deposit.

Our reliance on certificates of deposit to fund our operations has resulted in a higher cost of funds than would otherwise be the case

if we had a higher percentage of demand deposits, savings deposits and money market accounts.

In addition, if our certificates of deposit do not remain with us, we may be required to access other sources of funds, including loan sales, other types of

deposits, including replacement certificates of deposit, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank of Chicago and other borrowings.

Depending on market conditions, we may be required to pay higher rates

on such deposits or other borrowings than we currently pay on our certificates of deposit.

We may not be able to attract and retain skilled people.

Our success depends, in large part, on our ability to attract and retain skilled people.

Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them.

The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

Competition for the best people in most

activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them.

The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because

of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships.

Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor.

While we believe our relationship with our key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization.

Loss of a key

employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor.

While we believe our relationship with our key personnel is good, we cannot guarantee that all of our key

personnel will remain with our organization.

Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of some of our customers.

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We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions.

Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery.

Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits.

This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

In the event of a breakdown in the internal control system, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer damage to our reputation.

risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing

and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery.

Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance

and customer attrition due to potential negative publicity.

In the event of a breakdown in the internal control system, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer

damage to our reputation.

Risks associated with system failures, interruptions, or breaches of cybersecurity could negatively affect our earnings.

Information technology systems are critical to our business.

We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits and loans.

We have established policies and procedures to prevent or limit the effect of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur.

Although we take numerous protective measures and otherwise endeavor to protect and maintain the privacy and security of confidential data, these systems may be vulnerable to unauthorized access, computer viruses, other malicious code, cyber-attacks, cyber-theft and other events that could have a security impact.

If one or more of such events were to occur, this potentially could jeopardize confidential and other information processed and stored in, and transmitted through, our systems or otherwise cause interruptions or malfunctions in our or our customers' operations.

We use various technology systems to manage our customer relationships,

general ledger, securities investments, deposits and loans.

We have established policies and procedures to prevent or limit the effect of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately

addressed if they do occur.

malicious code, cyber-attacks, cyber-theft and other events that could have a security impact.

If one or more of such events were to occur, this potentially could jeopardize confidential and other information processed and stored in, and transmitted

through, our systems or otherwise cause interruptions or malfunctions in our or our customers' operations.

In addition, we outsource a majority of our data processing to certain third-party providers.

If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected.

Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny, or expose us to litigation and possible financial liability.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully covered by our insurance.

If these third-party providers encounter

difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected.

Threats to information security also exist in

the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers

and business, subject us to additional regulatory scrutiny, or expose us to litigation and possible financial liability.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate

vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully covered by our insurance.

Any of these events could have a material adverse effect on our financial condition and results of operations.

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Our risk management framework is designed to minimize risk and loss to us.

We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks.

While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks.

Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk.

We seek to identify, measure, monitor, report and control our

exposure to risk, including strategic, market, liquidity, compliance and operational risks.

While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate

the existence or future development of currently unanticipated or unknown risks.

Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of

Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.

Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes.

Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of

loss due to fraud and other financial crimes.

We have experienced losses due to apparent fraud and other financial crimes.

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We must maintain sufficient funds to respond to the needs of depositors and borrowers.

As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit.

As a part of our liquidity management, we use a

number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances,

proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit.

Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.

If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.

financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.

If we are required to rely more heavily on

more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.

In this case, our operating margins and profitability would be adversely affected.

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Consumers can now easily access historically banking needs through online banking accounts, brokerage accounts, mutual funds or general-purpose reloadable prepaid cards.

Consumers can also complete certain transactions without the assistance of banks.

The removal of banking with financial transactions could result in the loss of customer loans, customer deposits, and the related fee income generated from those loans and deposits.

Consumers can also complete certain transactions without the assistance of

The removal of banking with financial transactions could result in the loss of customer loans, customer deposits, and the related fee

income generated from those loans and deposits.

The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

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Competition in the banking and financial services industry is intense.

In our market areas, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, money market funds, insurance companies, and brokerage firms operating locally and elsewhere.

Some of our competitors have greater name recognition and market presence and offer certain services that we do not or cannot provide, all of which benefit them in attracting business.

In our market areas, we compete with commercial banks, savings

institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, money market funds, insurance companies, and brokerage firms operating locally and elsewhere.

Some of our competitors have greater name recognition and market

presence and offer certain services that we do not or cannot provide, all of which benefit them in attracting business.

In addition, larger competitors may be able to price loans and deposits more aggressively than we do.

Competitive factors driven

by consumer sentiment or otherwise can also reduce our ability to generate fee income, such as through overdraft fees.

Risks Related to Mortgage Banking Operations

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Our mortgage banking operations provide a significant portion of our non-interest income.

In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans.

In addition to being affected by interest

rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans.

These conditions may fluctuate or worsen in the future.

In light of current conditions, there is greater risk in retaining mortgage loans pending their sale to investors.

In light of current

conditions, there is greater risk in retaining mortgage loans pending their sale to investors.

We believe our ability to retain fixed-rate residential mortgage loans is limited.

As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have a material adverse effect on our financial condition and results of operations.

Changes 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.

We generate mortgage revenues primarily from gains on the sale of single-family mortgage loans pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and non-GSE investors.

As a result, a prolonged period of secondary market illiquidity may

reduce our loan production volumes and could have a material adverse effect on our financial condition and results of operations.

Changes 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.

We generate mortgage revenues primarily from gains on the sale of single-family mortgage loans pursuant to programs currently offered by

Fannie Mae, Freddie Mac, Ginnie Mae and non-GSE investors.

These entities account for a substantial portion of the secondary market in residential mortgage loans.

Any future changes in these programs, our eligibility to participate in such programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations.

Any future changes in these programs, our eligibility to participate in such

programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities could, in turn, materially adversely affect our results of operations.

If we are required to repurchase mortgage loans that we have previously sold, it could negatively affect our earnings.

One of our primary business operations is our mortgage banking, which involves originating residential mortgage loans for sale in the secondary market under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans.

We may be required to repurchase mortgage loans that we have sold in cases of borrower default or breaches of these representations and warranties.

One of our primary business operations is our mortgage banking, which involves originating residential mortgage loans for sale in the

secondary market under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans.

We may be required to repurchase mortgage loans that we have sold in cases of

borrower default or breaches of these representations and warranties.

If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could increase our costs and thereby affect our future earnings.

Risks Related to Economic Matters

Changes 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.

Changes 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.

Economic conditions have an impact, to some extent, on our overall performance.

Conditions such as an economic recession, rising unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.

Because a majority of our loans are secured by real estate, decreases in real estate values could adversely affect the value of property used as collateral.

Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings.

Conditions such as an economic recession, rising

unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.

Because a majority of our loans are secured by real

estate, decreases in real estate values could adversely affect the value of property used as collateral.

Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which

could have an adverse impact on our earnings.

Consequently, declines in the economy in our market area could have a material adverse effect on our financial condition and results of operations.

Because 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.

Because 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.

Substantially all of our loans are secured by real estate located in our primary market area.

Weakness in our local economy and our local real estate markets could adversely affect the ability of our borrowers to repay their loans and the value of the collateral securing our loans, which could adversely affect our results of operations.

Real estate values are affected by various factors, including supply and demand, changes in general or regional economic conditions, interest rates, governmental rules or policies and natural disasters.

Weakness in economic conditions also could result in reduced loan demand and a decline in loan originations.

Weakness in our local economy and our

local real estate markets could adversely affect the ability of our borrowers to repay their loans and the value of the collateral securing our loans, which could adversely affect our results of operations.

Real estate values are affected by various

factors, including supply and demand, changes in general or regional economic conditions, interest rates, governmental rules or policies and natural disasters.

Weakness in economic conditions also could result in reduced loan demand and a decline in

loan originations.

In particular, a significant decline in real estate values would likely lead to a decrease in new loan originations and increased delinquencies and defaults by our borrowers.

Risks Related to Accounting Matters

Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and results of operations.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial condition and results

of operations.

Our accounting policies are essential to understanding our financial condition and results of operations.

Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.

Some of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.

From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements.

These changes are beyond our control, can be hard to predict and could materially affect how we report our financial condition and results of operations.

Some of these policies require

the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.

Some of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about

matters that are inherently uncertain, and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

If such estimates or assumptions underlying our financial statements are

incorrect, we may experience material losses.

From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting

and reporting standards or the interpretation of those standards that govern the preparation of our financial statements.

These changes are beyond our control, can be hard to predict and could materially affect how we report our financial condition

and results of operations.

We could also be required to apply a new or revised standard retroactively, which may result in our restating our prior period financial statements.

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We report certain assets, such as loans held for sale, at estimated fair value.

Generally, for assets that are reported at fair value, we use quoted market prices or valuation models that utilize observable market inputs to estimate fair value.

Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk.

Generally, for assets that are reported at fair value,

we use quoted market prices or valuation models that utilize observable market inputs to estimate fair value.

Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents

minimal credit risk.

Other Risks Related to Our Business

A protracted government shutdown may result in reduced loan originations and related gains on sale and could negatively affect our financial condition and results of operations.

A protracted government shutdown may result in reduced loan originations and related gains on sale and could negatively affect our

financial condition and results of operations.

Our mortgage banking operations provide a significant portion of our non-interest income.

During any protracted federal government shutdown, we may not be able to close certain loans and we may not be able to recognize non-interest income on the sale of loans.

Some of the loans we originate are sold directly to government agencies, and some of these sales may be unable to be consummated during the shutdown.

During any protracted federal government

shutdown, we may not be able to close certain loans and we may not be able to recognize non-interest income on the sale of loans.

Some of the loans we originate are sold directly to government agencies, and some of these sales may be unable to be

consummated during the shutdown.

In addition, we believe that some borrowers may determine not to proceed with their home purchase and not close on their loans, which would result in a permanent loss of the related non-interest income.

A federal government shutdown could also result in reduced income for government employees or employees of companies that engage in business with the federal government, which could result in greater loan delinquencies, increases in our nonperforming, criticized and classified assets and a decline in demand for our products and services.

government shutdown could also result in reduced income for government employees or employees of companies that engage in business with the federal government, which could result in greater loan delinquencies, increases in our nonperforming,

criticized and classified assets and a decline in demand for our products and services.

Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.

We, and other participants in the financial services industry upon whom we rely to operate, have been and may in the future become involved in legal and regulatory proceedings.

We, and other participants in the financial services industry upon whom we rely to operate, have been and may in the future become

involved in legal and regulatory proceedings.

Most of the proceedings we consider to be in the normal course of our business or typical for the industry;

however, it is inherently difficult to assess the outcome of these matters, and other participants in the financial services industry or we may not prevail in any proceeding or litigation.

Any litigation or regulatory proceeding could entail substantial costs and divert management’s attention away from our operations, and any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

We are currently a defendant in multiple lawsuits alleging that Waterstone Mortgage Corporation violated certain provisions of the Fair Labor Standards Act.

Although we intend to vigorously defend our interests in this matter and pursue all possible defenses against the claims, we may ultimately be required to pay significant damages and attorney fees, which would adversely affect our financial condition and results of operations.

however, it is inherently difficult to assess the outcome of these matters, and other

participants in the financial services industry or we may not prevail in any proceeding or litigation.

Any litigation or regulatory proceeding could entail substantial costs and divert management’s attention away from our operations, and

any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

We are currently a defendant in multiple lawsuits alleging that Waterstone Mortgage Corporation violated certain provisions of the Fair

Labor Standards Act.

our financial condition and results of operations.

See Note 14 - Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities of the notes to consolidated financial statements for additional information.

We may be required to transition from the use of LIBOR in the future.

In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021.

The announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021.

It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.

At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.

Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans and securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings.

Our adjustable-rate mortgage loans are generally tied to the LIBOR.

If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers, we may incur expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.

We will be required to transition from the use of LIBOR in the future.

We have certain loans indexed to LIBOR to calculate the loan interest

The LIBOR index will be discontinued for U.S.

Dollar settings effective June 30, 2023.

At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR.

The implementation of a substitute index or indices

for the calculation of interest rates under our loan agreements with our borrowers may incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may

result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

Additionally, since alternative rates are

calculated differently, the transition may change our market risk profile, requiring changes to risk and pricing models.

Changes in the valuation of our securities portfolio could adversely affect our profits.

Our securities portfolio may be impacted by fluctuations in fair value, potentially reducing accumulated other comprehensive income and/or earnings.

Our securities portfolio may be impacted by fluctuations in fair value, potentially reducing accumulated other comprehensive income

and/or earnings.

Fluctuations in fair value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand.

Management evaluates securities for other-than-temporary impairment on a monthly basis, with more frequent evaluation for selected issues.

In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free rates.

Management evaluates securities for other-than-temporary impairment on a monthly basis,

with more frequent evaluation for selected issues.

In analyzing a debt issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have

occurred, industry analysts’ reports and, to a lesser extent given the relatively insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the portfolio compared to risk-free

In analyzing an equity issuer’s financial condition, management considers industry analysts’ reports, financial performance and projected target prices of investment analysts within a one-year time frame.

If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur.

Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates.

We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes.

If this evaluation shows impairment

to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur.

Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are

reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates.

We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of

The declines in fair value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

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From time to time, we may implement new lines of business or offer new products and services within existing lines of business.

In addition, we will continue to make investments in research, development, and marketing for new products and services.

There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.

addition, we will continue to make investments in research, development, and marketing for new products and services.

There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not

fully developed.

In developing and marketing new lines of business and/or new products and services we may invest significant time and resources.

Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible.

Initial timetables for the development and introduction of new lines of business and/or new products or

services may not be achieved and price and profitability targets may not prove feasible.

Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services.

External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.

Furthermore, the burden on management and our information technology of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls.

Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.

Furthermore, the burden on management and

our information technology of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls.

Failure to successfully manage these risks in the development

and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

Increasing 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.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental,

social and governance (“ESG”) practices and disclosure.

Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity,

labor conditions and human rights.

Increased ESG related compliance costs could result in increases to our overall operational costs.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards

could negatively impact our reputation, ability to do business with certain partners, and our stock price.

New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting,

diligence, and disclosure.

Acquisitions may disrupt our business and dilute stockholder value.

We regularly evaluate merger and acquisition opportunities with other financial institutions and financial services companies.

As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time.

We would seek acquisition partners that offer us either significant market presence or the potential to expand our market footprint and improve profitability through economies of scale or expanded services.

Acquiring other banks, businesses, or branches may have an adverse effect on our financial results and may involve various other risks commonly associated with acquisitions, including, among other things:

result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time.

We would seek acquisition partners that offer us either significant market presence or the potential to expand

our market footprint and improve profitability through economies of scale or expanded services.

Acquiring other banks, businesses, or branches may have an adverse effect on our financial results and may involve various other risks

commonly associated with acquisitions, including, among other things:

difficulty in estimating the value of the target company;

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Various factors may make takeover attempts more difficult to achieve.

Our articles of incorporation and bylaws, federal regulations, Maryland law, shares of restricted stock and stock options that we have granted or may grant to employees and directors and stock ownership by our management and directors, and various other factors may make it more difficult for companies or persons to acquire control of Waterstone Financial without the consent of our board of directors.

Our articles of incorporation and bylaws, federal regulations, Maryland law, shares of restricted stock and stock options that we have

granted or may grant to employees and directors and stock ownership by our management and directors, and various other factors may make it more difficult for companies or persons to acquire control of Waterstone Financial without the consent of our

board of directors.

A shareholder may want a takeover attempt to succeed because, for example, a potential acquiror could offer a premium over the then prevailing price of our common stock.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors