Sound Financial Bancorp (SFBC) risk factors, FY2024 10-K

Risks Related to Macroeconomic Conditions

1. 01A worsening of economic conditions in our market area could reduce demand for our products and services and result in increases in our level of nonperforming loans, which could adversely affect our operations, financial condition and earnings
2. 02Monetary policy, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations

Risks Related to Our Lending

1. 03Our loan portfolio includes loans with a higher risk of loss
2. 04Our business may be adversely affected by credit risk associated with residential property and declining property values
3. 05Our allowance for credit losses on loans may prove inadequate or we may be negatively affected by credit risk exposures. Future additions to our allowance for credit losses on loans, as well as charge-offs in excess of reserves, will reduce our earnings

Risks Related to Market and Interest Rate Changes

1. 06Fluctuating interest rates can adversely affect our profitability
2. 07Changes in the valuation of our securities portfolio could hurt our profits and reduce our capital levels
3. 08An increase in interest rates, changes in the programs offered by Fannie Mae or our ability to qualify for its programs may reduce our mortgage revenues, which would negatively impact our noninterest income
4. 09We may incur losses in the fair value of our mortgage servicing rights due to changes in prepayment rates

Risks Related to Cybersecurity, Data and Fraud

1. 10A failure in or breach of our security systems or infrastructure, including breaches resulting from cyber-attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses
2. 11address crucial information security vulnerabilities or exposures. Despite our efforts, they might not prevent all physical and electronic intrusions, denial of service, cyber-attacks, or security breaches
3. 12The failure to protect our customers' confidential information and privacy could adversely affect our business
4. 13These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information
5. 14Our operations rely on certain external vendors
6. 15Our current and future uses of Artificial Intelligence (AI) and other emerging technologies may create additional risks
7. 16We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements
8. 17Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes

Regulatory and Accounting-Related Risks

1. 18We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations
2. 19The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny
3. 20Our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and we use estimates in determining the fair value of certain of our assets, which estimates may prove to be imprecise and result in significant changes in valuation
4. 21We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability
5. 22Increasing 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

Risks Related to our Business and Industry Generally

1. 23Ineffective liquidity management could adversely affect our financial results and condition
2. 24Climate change and related legislative and regulatory initiatives may materially affect the Company's business and results of operations
3. 25If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected
4. 26We are subject to certain risks in connection with our data management or aggregation
5. 27Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed, or the cost of that capital may be exceedingly high
6. 28As a community bank, maintaining our reputation in our market area is critical to the success of our business, and the failure to do so may materially adversely affect our performance
7. 29The Company might not be able to attract and retain skilled employees
8. 30The Company's ability to pay dividends, repurchase stock and make subordinated debt payments is subject to the ability of the Bank to make capital distributions to the Company