October 9, 2007
Mail-Stop 4561
Ms. Laura Lee Stewart
President and Chief Executive Officer
Sound Financial, Inc.
2005 Fifth Avenue, Second Floor
Seattle, Washington, 98121
Re: Sound Financial, Inc.
Form SB-2
Filed September 20, 2007
File No. 333-146196
Dear Ms. Stewart:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or any other aspect of our review. Feel free
to
call us at the telephone numbers listed at the end of this letter.
Form SB-2
Summary
Sound Community Bank, page 1
1. We note your disclosure in the first full paragraph on page 2
that
the Bank intends to expand its emphasis on commercial real estate,
construction and development, and commercial lending areas.
However,
the fourth paragraph under "Business and Operating Strategy and
Goals" does not mention construction and development loans. Please
revise to reconcile the two paragraphs.
Business and Operating Strategy and Goals, page 3
2. Revise the second paragraph to clarify if "invest in loans"
means
purchase of loans or origination of loans. In this regard,
disclose
if loan demand has exceeded the Company`s ability to fund loans
historically.
3. Revise the second paragraph to expand on what types of loans
Fannie Mae will not purchase that the Company originates.
Reasons for the Reorganization and the Stock Offering, page 5
4. Revise the last 2 bullets on page 5 to disclose the prepayment
penalty, if any, on the repayment, and mention commercial real
estate, construction and development loans, as applicable.
How We will Use the Proceeds, page 12
5. Revise the tables here and in the section beginning on page 30,
"How We Intend To Use The Proceeds", to include the proposed FHLB
repayments of $11.5 million as disclosed in the narrative of each
section.
Risk Factors
Our Loan portfolio possesses increased risk due..., page 20
6. Revise to also disclose the construction and development loans
totals and percentage. In addition, it appears from page 92 that
the
first amount should be $22.8, not $22.5. Finally, disclose the
highest balance to a single borrower or group of borrowers.
7. Noting the disclosure regarding the benefit plans and whether
or
not they will be implemented after 12 months, either revise to
indicate your current intention (See, "Benefits to Management from
the Offering" on pages 13-14) or, if undetermined at this time or
will be implemented after one year, or add a risk factor
captioned,
"Adoption of benefit plans after one year does not require
shareholder approval and may result in substantial additional
dilution and significantly increased compensation expense", or
another similar title. In the added risk factor, describe the
maximum
limitations on the material terms, e.g., number of shares,
exercise
prices, etc., of plans adopted more than one year after the
offering.
Forward-Looking Statements, page 26
8. Remove all references to the Private Securities Litigation
Reform
Act of 1995.
Preference Category No. 4: Other Members, page 56
9. Revise to add a definition for "other members".
Management`s Discussion and Analysis
Critical Accounting Policies - Allowance for Loan Losses, page 71
10. You disclose that under the supervisory directive issued by
the
OTS you were required to enhance your loan review and
classification
process. Please revise to disclose the specific changes that were
made to your loan review and classification process and how such
changes impacted your determination of the allowance for loan
losses.
Lending Authority, page 95
11. Revise to address the approval authority and amounts for
construction and development.
Business of Sound Community Bank
Asset Quality - Allowance for Loan Losses, page 105
12. In the last paragraph on page 106 you indicate that charge-
offs
and the inherent risks associated with your credit card portfolio
were the primary reasons for the level of provisions taken during
prior years. Please revise to quantify the level of charge-offs
and
recoveries attributable to your credit card portfolio for each of
the
periods presented.
13. Noting the significant decreases in the amount of the
allowance
as well as the ratio of the allowance to non-performing loans,
since
2005, revise the first full risk factor on page 21 to include the
allowance amounts for years ended 2005, 2006 and June 30, 2007 and
the allowance as a percentage of non-performing loans.
Deposits, page 111
14. Noting that there were negative net deposits in the first six
months of 2007 and that almost 40% of your deposits mature before
June 30, 2008, revise the second risk factor on page 21 to
disclose
these items and address the trends since the end of 2005 with
regard
to decreasing amounts of new deposits and the increasing
significant
percentage of high cost, short-term CD`s as a percentage of total
deposits, if true.
15. Revise the last paragraph on page 112 to briefly describe the
"special promotions".
Management, page 117
16. Revise to disclose the ages as required by Item 401(a)(1) of
Regulation S-B.
Directors of Sound Community Bank, page 118
17. Revise the biographies to disclose the positions held for the
last five years for Messrs. Myers, Haddad, Carney and Sweeney. As
an
alternate, revise the sentence below the table on page 118 to
indicate the current position, unless otherwise indicated, has
been
held for the last 5 years.
Executive Compensation, page 121
18. Noting the bonuses disclosed in the tables on page 124, revise
the last paragraph on page 121 (carried over to page 122) to
disclose
how the actual amounts reconcile with the percentages disclosed in
the carryover paragraph.
19. With regard to the table at the bottom of page 124, revise to
add
disclosure regarding the policies for payment for accrued
vacations
and matching charitable contributions.
Supplemental Executive Retirement, page 125
20. Noting from the disclosure that Ms. Stewart is entitled to the
accrued amount in the event of involuntary termination or a change
in
control, revise to disclose the amount accrued as of June 30,
2007,
the annual accrual amount and the annual expense for the insurance
payments.
Business relationships ..., page 127
21. Revise footnote (1) to indicate the range of discounts, e.g.,
1%-
3%, etc.
Where You Can Find Additional Information, page 140
22. Revise to use the new address of the SEC, 100 F Street, NE.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies
- - Loans Held-for-Sale, page F-10
23. We note that you sell a portion of your residential real
estate
loans in the secondary market, primarily to Fannie Mae. You have
disclosed that you classify these loans as held-for-sale in your
consolidated balance sheet; however we did not note any loans
classified as such for any of the periods presented.
* Please tell us whether you held any loans for which you did not
have the intent and ability to hold for the foreseeable future or
until maturity or payoff as of the end of each period presented.
If
so, please revise to classify such loans as held-for-sale.
* In addition, please tell us how you considered the guidance in
paragraph 9 of SFAS 102 in determining the appropriate
classification
of cash flows related to the origination and sale of loans in the
secondary market.
Note 14 - Commitments and Contingent Liabilities, page F-27
24. We note that you have not recorded a recourse liability
related
to your representations and warranties exposure on loans sold in
the
secondary market. Please revise to disclose whether you have ever
had to perform under this guarantee and if so, quantify the amount
of
losses sustained in each period presented.
Exhibit 5
25. Revise the legal opinion to use 1,725,863 (the amount
registered)
or advise the staff as to why 1,725,832 are being opined upon.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
??should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
??the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
??the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in connection with our review
of
your filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the
securities specified in the above registration statement. We will
act on the request and, pursuant to delegated authority, grant
acceleration of the effective date.
The accounting staff are reviewing the accounting responses
and
may have additional comments based upon their review. Any
questions
regarding the accounting comments may be directed to Angela
Connell
at (202) 551-3426 or Hugh West at (202) 551-3872. All other
questions may be directed to Michael Clampitt at (202) 551-3434 or
to
me at (202) 551-3491.
Sincerely,
Todd Schiffman
Assistant Director
Financial Services Group
CC: Marianne E. Roche, Esq.
Silver, Freedman & Taff,L.L.P.
3299 Wisconsin Avenue N.W.
Washington, DC 20007
Phone (202) 295-4500
Facsimile (202) 337-5502
Ms. Laura Lee Stewart
Sound Financial, Inc.
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