Company: SFBC
Filing Date: 2025-03-18
Form Type: 10-K
Source: 0001541119-25-000009
Chunk: 142

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 8
Chunk 142
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: (1) identification of loans that do not share risk characteristics with collectively evaluated loan pools, which are individually analyzed for expected credit loss and (2) establishment of an ACL for collectively evaluated loan pools based upon loans that share similar risk characteristics. We maintain a loan review system that periodically assesses our loan portfolio and identifies individually analyzed loans. For loans that do not share risk characteristics with other loans, expected credit loss is measured as the difference between the discounted value of expected future cash flows (based on the original effective interest rate) and the loan’s amortized cost basis. The amortized cost basis is net of previous charge-offs and deferred loan fees and costs. If the net realizable value of the loan is less than its amortized cost basis, we recognize an expected credit loss for the difference. For collateral-dependent loans, where the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation 

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or sale of the collateral, we have elected the practical expedient under ASC 326. Under this approach, expected credit losses are measured based on the fair value of the collateral, considering estimated selling costs when a sale is expected.We estimate the ACL using relevant information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. The ACL is measured on a collective (segment) basis when similar risk characteristics exist. Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimate of expected credit losses. Segments are based upon federal call report segmentation. The reserve was applied on a loan-by-loan basis and condensed into the applicable segments reported in “Note 5— Loans.”The ACL is measured on a collective basis for pools of loans with similar risk characteristics. We have identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:•Construction — While secured by real estate, construction loans carry greater risk than term real estate loans due to additional uncertainties, including the timely and cost-effective completion of construction, as well as the ability to sell the building or achieve stabilized occupancy sufficient to generate necessary cash flows for debt service and operating costs. Some loans are originated for borrowers who intend to occupy the property, creating a risk that they may be unable to secure permanent financing upon construction completion. To mitigate these risks, we require borrowers to adhere to lower loan-to-value ratios and additional covenants and demonstrate strong financial support from guarantors or borrowers.•One-to-four family residential closed end loans secured by first liens — The primary drivers