Company: SFBC
Filing Date: 2025-03-18
Form Type: 10-K
Source: 0001541119-25-000009
Chunk: 105

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 7
Chunk 105
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 constant during the quarter compared to the look-back period. The historical look-back period and loss rate serve as the foundation of the ACL methodology, considering both our loss history and peer loss rates. No historical or recent experience has indicated notable deviations from management’s assessments.

Mortgage Servicing Rights.  We record MSRs on loans sold to Fannie Mae with servicing retained as well as for acquired servicing rights. We stratify our capitalized MSRs based on the type, term and interest rates of the underlying loans. MSRs are carried at fair value. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, weighted average life and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. If our assumptions prove to be incorrect, the value of our MSRs could be negatively impacted. We use a third party to assist us in the preparation of the analysis of the market value each quarter. 

This analysis is conducted using a secondary valuation to assess the sensitivity of prepayment speeds and changes in market value due to fluctuations in the weighted average life. If interest rates were to increase, the prepayment speed of our MSR portfolio would decrease which would also lead to an increase in the weighted average life. Conversely, if interest rates were to decrease, the prepayment speed would increase and the weighted average life would decrease.  We performed a sensitivity analysis utilizing two third-party valuations where we compared the assumptions within the models.  Under a scenario of a decrease in the prepayment speed, an increase in the discount rate, and a decrease in the weighted average life of the MSR portfolio, the fair value of the MSR portfolio would decrease by approximately $420 thousand.  No historical or recent experience has indicated notable deviations from management’s assessments. 

Business and Operating Strategies and Goals 

Our goal is to deliver returns to stockholders by increasing higher-yielding assets (including consumer, commercial and multifamily real estate and commercial business loans), increasing lower-cost core deposit balances, managing expenses, managing problem assets and exploring expansion opportunities. We seek to achieve these results by focusing on the following objectives:

Focusing on Asset Quality.  We believe that strong asset quality is a key to our long-term financial success. We are focused on monitoring existing performing loans, resolving nonperforming assets and selling foreclosed assets. Nonperforming assets were $7.5 million, or 0.75% of total assets, at December 31, 2024 compared to $4