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

Company: Sound Financial Bancorp, Inc.
Filing Date: 2025-03-18
Form: 10-K
Item: Item 1
Chunk 18
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 lot loans15,538 19,363 Residential lot loans844 2,960 Residential construction6,053 8,444 Total$73,077 $126,758 

Our residential construction loans generally provide for the payment of interest only during the construction phase, which is typically 12 to 18 months. At the end of the construction phase, the construction loan generally either converts to a longer-term mortgage loan or is paid off with a permanent loan from another lender. Residential construction loans are made up to the lesser of a maximum loan-to-value ratio of 100% of cost or 80% of appraised value at completion; however, we generally do not originate construction loans which exceed these limits without some form of credit enhancement to mitigate the higher loan to value.

13

At December 31, 2024, our largest residential construction loan commitment was for $2.2 million, $1.4 million of which had been disbursed. This loan was performing according to its repayment terms at December 31, 2024. The average outstanding residential construction loan balance was approximately $319 thousand at December 31, 2024. Before making a commitment to fund a construction loan, we require an appraisal of the subject property by an independent approved appraiser. During the construction phase, we make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors or borrowers as construction progresses. Loan proceeds are disbursed after inspection based on the percentage of completion method. We require general liability insurance, builder's risk hazard insurance, title insurance, and flood insurance, for properties located in or to be built in a designated flood hazard area, on all construction loans.

We also originate developed lot and raw land loans to individuals intending to construct a residence in the future on the property. We generally originate these loans in an amount up to 75% of the lower of the purchase price or appraisal. These lot and land loans are secured by a first lien on the property and have a fixed rate of interest with a maximum amortization of 20 years.

We make land acquisition and development loans to experienced builders or residential lot developers in our market area. The maximum loan-to-value limit applicable to these loans is generally 75% of the projected market value upon completion of the project. We may not require cash equity from the borrower if there is sufficient equity in the land being used as collateral. Development plans are required prior to making the loan. Our loan officers visit the proposed site of