Company: SFBC
Filing Date: 2025-03-18
Form Type: 10-K
Source: 0001541119-25-000009
Chunk: 145

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 8
Chunk 145
---
 segment. The qualitative factors are evaluated using a five-point scale ranging from improvement to major risk. Improvement represents an adjustment down to the minimum historical loss rate. Major risk represents an adjustment up to the maximum historical loss rate. The rating of the qualitative factor and the allocated weighting determines the adjustment to the historical loss rate. Management utilizes a scorecard approach in the determination of what level of the five-point scale to assign to each qualitative adjustment. This includes, but is not limited to, differences between local and national unemployment rates, quantitative changes in inflation, introduction of new product lines, level of past due loans, risk rating of certain loan portfolios, loan review downgrades or upgrades, and quantitative approaches to measuring the risk of underlying collateral. The ACL is established through the provision for credit losses that is reported in the Consolidated Statements of Income, which is based upon an evaluation of estimated losses in the current loan portfolio, including the evaluation of individually analyzed loans. Charge-offs against the ACL are taken on loans where we determine that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the ACL. Although we believe we have established and maintained the ACL on loans at appropriate levels, changes in reserves may be necessary if actual economic and other conditions differ substantially from the forecast used in estimating the ACL. We evaluate our ACL policy and judgments on an ongoing basis and update them as necessary based on changing conditions. As part of our continuous enhancement to the ACL methodology, during the year ended December 31, 2023, an assessment of the loss rates utilized for each segment was performed and updated to use peer loss rates. Additionally, we enhanced the inputs related to our reasonable and supportable forecast through the inclusion of a quantitative model as part of our forecast which replaced a previous qualitative method. This change in the ACL is considered a change in accounting estimate as per ASC 250-10, where adjustments should be made prospectively.Accrued interest receivable for loans is reported in accrued interest receivable balances in the Consolidated Balance Sheets. We elected not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on loans that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if we believe the collection of interest is doubtful. We concluded that this policy results in the timely reversal of uncollectable interest. Allowance for Credit Losses on Unfunded Commitments – We are required to include unfunded commitments that are expected to