Company: SFBC
Filing Date: 2025-03-18
Form Type: 10-K
Source: 0001541119-25-000009
Chunk: 143

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 8
Chunk 143
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 of potential loss in our residential real estate portfolio included general, regional, or individual economic conditions that effect employment and borrowers’ cash flows. Risk in this portfolio is best measured through changes in borrower credit scores and loan-to-value ratios. Loss estimates are based on credit score trends, economic outlook, home values, and historical loss experience, adjusted for economic conditions and unemployment rates.•One-to-four family residential secured by junior liens — Similar to first-lien residential real estate loans, the performance of junior lien loans is primarily influenced by borrower cash flow and employment status. However, junior lien loans carry additional risk because they are typically secured by a deed of trust subordinate to the primary lien holder. For home equity lines of credit (“HELOCs”), there is an added risk that, as a borrower's financial condition deteriorates, the outstanding balance may increase since the Company can only cancel these credit lines under specific, limited conditions. In addition to the ACL maintained as a percentage of the outstanding loan balance, we maintain additional reserves for the unfunded portion of HELOCs.•Commercial and multifamily real estate — Non-owner-occupied commercial and multifamily properties typically consist of leased buildings, where rental income serves as the primary source of repayment. Owner-occupied commercial properties generally rely on the financial condition of the business operating within the property. The portfolio primarily includes loans secured by office, retail, light industrial, and multifamily properties, along with some special-use properties. The risk of loss is primarily driven by economic changes that affect tenants’ or business owners’ ability to pay rent. These properties require more intensive management due to potential tenant turnover, which can impact occupancy rates and rental income. Additional risks include oversupply from new construction, rising operating costs, and changes in interest rates. These loans typically have maturities of five to ten years at origination, with amortization periods ranging from 15 to 25 years.•Commercial and industrial — Repayment of these loans is primarily based on the borrower’s cash flow and secondarily on the underlying collateral. Borrower cash flows may be unpredictable, and collateral (often accounts receivable, inventory, or equipment) can fluctuate in value. Such collateral may depreciate, be difficult to appraise, or be illiquid. Losses in this portfolio tend to be closely correlated with actual and forecasted changes in gross domestic product.•Floating homes — The primary drivers of potential loss in our floating homes portfolio included general, regional, or individual economic conditions that effect employment and borrowers’ cash flows. Risk in this portfolio is best