Company: SFBC
Filing Date: 2025-03-18
Form Type: 10-K
Source: 0001541119-25-000009
Chunk: 46

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 1
Chunk 46
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 concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. At December 31, 2024, Sound Community Bank’s aggregate recorded loan balances for construction, land development and land loans were 63.9% of CBLR Capital. In addition, at December 31, 2024, Sound Community Bank’s loans on all commercial real estate, including 

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construction, owner and non-owner occupied commercial real estate, and multi-family lending, as defined by the FDIC, were 348.5% of CBLR Capital.

Transactions with Related Parties. Sound Financial Bancorp and Sound Community Bank are separate and distinct legal entities.  Sound Community Bank is an affiliate of Sound Financial Bancorp and any non-bank subsidiary of the latter. Federal laws restrict the ability of banks to engage in certain transactions with their affiliates. Under Section 23A of the Federal Reserve Act, “covered transactions” between a bank and an affiliate are limited to 10% of the bank's capital and surplus, with an aggregate cap of 20% for all affiliates. Further, loans and extensions of credit considered covered transactions typically require collateral in specified amounts. Section 23B of the Federal Reserve Act further mandates that such transactions be conducted on terms as favorable to the bank as those with non-affiliates.

Capital Rules. Sound Community Bank and Sound Financial Bancorp are required to maintain specified levels of regulatory capital under regulations of the FDIC and FRB, respectively. In September 2019, the regulatory agencies, including the FDIC and FRB, adopted a final rule, effective January 1, 2020, creating a CBLR for institutions with total consolidated assets of less than $10 billion, and that meet other qualifying criteria related to off-balance sheet exposures and trading assets and liabilities. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. Management has elected to use the CBLR framework for the Bank and Company. 

The CBLR is calculated as Tier 1 Capital to average consolidated assets as reported on an institution's regulatory reports. Tier 1 Capital, for the Company and the Bank, generally consists of common stock plus related surplus and retained earnings, adjusted for goodwill and other intangible assets and accumulated other comprehensive amounts (“AOCI”). Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies