Sound Financial Bancorp, Inc. Q3 2024 Results

SEATTLE, Oct. 30, 2024 (GLOBE NEWSWIRE) — Sound Financial Bancorp, Inc. (the “Company”) (Nasdaq: SFBC), the holding company for Sound Community Bank (the “Bank”), today reported net income of $1.2 million for the quarter ended September 30, 2024, or $0.45 diluted earnings per share, as compared to net income of $795 thousand, or $0.31 diluted earnings per share, for the quarter ended June 30, 2024, and $1.2 million, or $0.45 diluted earnings per share, for the quarter ended September 30, 2023. The Company also announced today that its Board of Directors declared a cash dividend on common stock of $0.19 per share, payable on November 26, 2024 to stockholders of record as of the close of business on November 12, 2024.

Comments from the President and Chief Executive Officer

“For the first time in our history, loans surpassed $900 million, and we continued to grow deposits. These production improvements came as we held operating expenses steady, demonstrating our ability to grow the Bank efficiently,” remarked Laurie Stewart, President and Chief Executive Officer. “We also completed a major upgrade to our online banking services and have received positive feedback on this from our clients,” concluded Ms. Stewart.

“Net income increased 45% from the prior quarter primarily due to the improvement in our net interest margin, which was driven by the repricing and origination of new loans at higher market rates. At the same time, funding costs increased at a slower pace, as the majority of our deposits had already been repriced. We also made progress in transitioning time deposits to savings and money market accounts, which typically carry lower rates and provide more flexibility for future repricing,” explained Wes Ochs, Executive Vice President and Chief Financial Officer.

Mr. Ochs continued, “As always, we remain focused on maintaining strong asset quality. Non-performing loans decreased from the prior quarter-end and we are actively utilizing available remedies to address the remaining problem loans.”

Q3 2024 Financial Performance
Total assets increased $26.1 million or 2.4% to $1.10 billion at September 30, 2024, from $1.07 billion at June 30, 2024, and increased $70.8 million or 6.9% from $1.03 billion at September 30, 2023.

    Net interest income increased $425 thousand or 5.7% to $7.9 million for the quarter ended September 30, 2024, from $7.4 million for the quarter ended June 30, 2024, and decreased $295 thousand or 3.6% from $8.2 million for the quarter ended September 30, 2023.

   
    Net interest margin (“NIM”), annualized, was 2.98% for the quarter ended September 30, 2024, compared to 2.92% for the quarter ended June 30, 2024 and 3.38% for the quarter ended September 30, 2023.

Loans held-for-portfolio increased $12.5 million or 1.4% to $901.7 million at September 30, 2024, compared to $889.3 million at June 30, 2024, and increased $26.3 million or 3.0% from $875.4 million at September 30, 2023.

   
    An $8 thousand provision for credit losses was recorded for the quarter ended September 30, 2024, compared to a $109 thousand and a $75 thousand release of provision for credit losses for the quarters ended June 30, 2024 and September 30, 2023, respectively. At September 30, 2024, the allowance for credit losses on loans to total loans outstanding was 0.95%, compared to 0.96% at both June 30, 2024 and September 30, 2023.

Total deposits increased $23.4 million or 2.6% to $930.2 million at September 30, 2024, from $906.8 million at June 30, 2024, and increased $69.3 million or 8.1% from $860.9 million at September 30, 2023. Noninterest-bearing deposits increased $4.8 million or 3.8% to $129.7 million at September 30, 2024 compared to $124.9 million at June 30, 2024, and decreased $24.2 million or 15.7% compared to $153.9 million at September 30, 2023.

   
    Total noninterest income increased $73 thousand or 6.3% to $1.2 million for the quarter ended September 30, 2024, compared to the quarter ended June 30, 2024, and increased $154 thousand or 14.2% compared to the quarter ended September 30, 2023.

The loans-to-deposits ratio was 97% at September 30, 2024, compared to 98% at June 30, 2024 and 102% at September 30, 2023.

   
    Total noninterest expense decreased $58 thousand or 0.7% to $7.7 million for the quarter ended September 30, 2024, compared to the quarter ended June 30, 2024, and decreased $31 thousand or 0.4% from compared to the quarter ended September 30, 2023.

Total nonperforming loans decreased $420 thousand or 4.7% to $8.5 million at September 30, 2024, from $8.9 million at June 30, 2024, and increased $6.7 million or 381.8% from $1.8 million at September 30, 2023. Nonperforming loans to total loans was 0.94% and the allowance for credit losses on loans to total nonperforming loans was 101.13% at September 30, 2024.

   
    The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as “well-capitalized” at September 30, 2024.

       
         

Operating Results

Net interest income increased $425 thousand, or 5.7%, to $7.9 million for the quarter ended September 30, 2024, compared to $7.4 million for the quarter ended June 30, 2024, and decreased $295 thousand, or 3.6%, from $8.2 million for the quarter ended September 30, 2023.The increase from the prior quarter was primarily due to a higher average yield on interest-earning assets, particularly loans receivable, and an increase in the average balances of both loans receivable and interest-earning cash. This was partially offset by a more modest rise in the cost of funds, as higher cost earnings interest-bearing deposits decreased by the end of the third quarter of 2024, limiting the growth in funding costs compared to the prior quarter. The decrease in net interest income compared to the same quarter one year ago was primarily due to higher funding costs, specifically, increased rates on and balances of money market and certificate accounts, partially offset by an increase in the average yield earned on interest-earning assets.

Interest income increased $799 thousand, or 5.7%, to $14.8 million for the quarter ended September 30, 2024, compared to $14.0 million for the quarter ended June 30, 2024, and increased $2.2 million, or 17.0%, from $12.7 million for the quarter ended September 30, 2023. The increase from the prior quarter was primarily due to a higher average balance of loans and interest-bearing cash, along with a 14 basis point increase in the average loan yield, reflecting higher rates on newly originated loans and upward adjustments to rates on existing variable rate loans. The increase in interest income compared to the same quarter last year was due primarily to higher average balances of loans and interest-bearing cash, a 41 basis point increase in the average yield on loans, a 20 basis point increase in the average yield on interest-bearing cash, and a seven basis point increase in the average yield on investments, partially offset by a decline in the average balance of investments.

Interest income on loans increased $556 thousand, or 4.5%, to $12.9 million for the quarter ended September 30, 2024, compared to $12.3 million for the quarter ended June 30, 2024, and increased $1.4 million, or 11.9%, from $11.5 million for the quarter ended September 30, 2023. The average balance of total loans was $898.6 million for the quarter ended September 30, 2024, up from $891.9 million for the quarter ended June 30, 2024 and $862.4 million for the quarter ended September 30, 2023. The average yield on total loans was 5.70% for the quarter ended September 30, 2024, up from 5.56% for the quarter ended June 30, 2024 and 5.29% for the quarter ended September 30, 2023. The increase in the average loan yield during the current quarter, compared to both the prior quarter and the third quarter of 2023, was primarily due to the origination of new loans at higher interest rates. Additionally, variable-rate loans resetting to higher rates contributed to the increase in average yield compared to the third quarter of 2023. The increase in the average balance during the current quarter compared to the prior quarter was primarily due to growth in commercial and multifamily loans, manufactured housing loans and consumer loans, with the growth in consumer loans coming primarily from floating home loans. This was partially offset by a decline in construction and land loans. The average balances for commercial business loans and one-to-four family loans remained relatively flat from the second quarter of 2024. The increase in the average balance of loans during the current quarter compared to the third quarter of 2023 was primarily due to loan growth across all categories, except for one-to-four family loans, construction and land loans, and commercial business loans, with the largest decrease being in construction and land loans.

Interest income on investments was $132 thousand for the quarter ended September 30, 2024, compared to $133 thousand for the quarter ended June 30, 2024, and $139 thousand for the quarter ended September 30, 2023. Interest income on interest-bearing cash increased $244 thousand to $1.8 million for the quarter ended September 30, 2024, compared to $1.6 million for the quarter ended June 30, 2024, and increased $788 thousand from $1.0 million for the quarter ended September 30, 2023. These increases were due to higher average balances of interest-bearing cash, with the increase from the same quarter in the prior year also resulting from a higher average yield.

Interest expense increased $374 thousand, or 5.7%, to $7.0 million for the quarter ended September 30, 2024, from $6.6 million for the quarter ended June 30, 2024, and increased $2.4 million, or 54.2%, from $4.5 million for the quarter ended September 30, 2023. The increase in interest expense during the current quarter from the prior quarter was primarily the result of a $38.8 million increase in the average balance of savings and money market accounts, as well as higher average rates paid on these accounts, partially offset by a $13.9 million decrease in the average balance of certificate accounts. The increase in interest expense during the current quarter from the comparable period a year ago was primarily the result of a $9.8 million increase in the average balance of certificate accounts and a $148.1 million increase in the average balance of savings and money market accounts, as well as higher average rates paid on all interest-bearing deposits. This was partially offset by a $46.3 million decrease in the average balance of demand and NOW accounts and a $2.8 million decrease in the average balance of FHLB advances. The average cost of deposits was 2.74% for the quarter ended September 30, 2024, up from 2.67% for the quarter ended June 30, 2024 and 1.85% for the quarter ended September 30, 2023. The average cost of FHLB advances was 4.32% for both the quarters ended September 30, 2024 and June 30, 2024, and down from 4.38% for the quarter ended September 30, 2023.

NIM (annualized) was 2.98% for the quarter ended September 30, 2024, up from 2.92% for the quarter ended June 30, 2024 and down from 3.38% for the quarter ended September 30, 2023. The increase in NIM from the prior quarter was result of an increase in interest income on interest-earning assets, partially offset by an increase in the cost of funding. The decrease in NIM from the quarter one year ago was primarily due to the cost of funding increasing at a faster pace than the yield earned on interest-earning assets, driven by the higher average balance of higher costing money market and certificate accounts.

A provision for credit losses of $8 thousand was recorded for the quarter ended September 30, 2024, consisting of a provision for credit losses on loans of $106 thousand and a release of provision for credit losses on unfunded loan commitments of $98 thousand. This compared to a release of provision for credit losses of $109 thousand for the quarter ended June 30, 2024, consisting of a release of provision for credit losses on loans of $88 thousand and a release of provision for credit losses on unfunded loan commitments of $21 thousand, and a provision for credit losses of $75 thousand for the quarter ended September 30, 2023, consisting of a provision for credit losses on loans of $224 thousand and a release of the provision for credit losses on unfunded loan commitments of$149 thousand. The increase in the provision for credit losses for the quarter ended September 30, 2024 compared to the quarter ended June 30, 2024 resulted primarily from growth in the loan portfolio and higher quantitative loss rates, which were influenced by a forecast of higher unemployment, and enhancements to the loss model, including an additional qualitative adjustment related to loan review. These adjustments were partially offset by decline in the balance of the construction loan portfolio, which typically has higher loss rates, and a decrease in the qualitative risk adjustment for construction loans as projects were completed and market conditions improved. Expected loss estimates consider various factors, such as market conditions, borrower -specific information, projected delinquencies, and the impact of economic conditions on borrowers’ ability to repay.

Noninterest income increased $73 thousand, or 6.3%, to $1.2 million for the quarter ended September 30, 2024, compared to the quarter ended June 30, 2024, and increased $154 thousand, or 14.2%, compared to the quarter ended September 30, 2023. The increase from the prior quarter was primarily related to a $217 thousand upward adjustment in fair value of mortgage servicing rights and a $52 thousand increase in earnings from bank-owned life insurance (“BOLI”), both influenced by fluctuating market interest rates. These gains were partially offset by a $133 thousand decrease in service charges and fee income, which was elevated in the prior quarter due to the recovery of potential future lost fee income due to vendor error. Additionally, there was a $34 thousand decrease in net gain on sale of loans, due to lower sales volume, and a $30 thousand decrease in gain on disposal of assets due to insurance claims on the loss of fully depreciated assets in second quarter of 2024. The increase in noninterest income from the comparable period in 2023 was primarily due to an $98 thousand increase in earnings on BOLI due to market rate fluctuations, and an $179 thousand increase in the fair value adjustment on mortgage servicing rights due to changes in prepayment speeds, servicing costs, and discount rate. These increases were partially offset by a $72 thousand decrease in service charges and fee income primarily due to a volume incentive paid by Mastercard in 2023, a $36 thousand decrease in net gain on sale of loans for reason similar to those noted above, and a decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than we are replacing the loans. Additionally, mortgage servicing income decreased by $15 thousand compared to the third quarter of 2023. Loans sold during the quarter ended September 30, 2024, totaled $2.4 million, compared to $4.0 million and $4.4 million of loans sold during the quarters ended June 30, 2024 and September 30, 2023, respectively.

Noninterest expense decreased $58 thousand, or 0.7%, to $7.7 million for the quarter ended September 30, 2024, compared to the quarter ended June 30, 2024, and decreased $31 thousand, or 0.4%, from the quarter ended September 30, 2023. The decrease from the quarter ended June 30, 2024 was primarily a result of lower a $189 thousand decrease in salaries and benefits, primarily due to lower incentive compensation accruals. This was partially offset by an $157 thousand increase in data processing expenses, largely due to a vendor reimbursement received in the previous quarter for software implementation costs. Additionally, regulatory assessments declined $31 thousand due to a lower accrual for exam costs. Compared to same quarter in 2023, the decrease in noninterest expense was primarily due to lower operations, data processing, and occupancy expenses, which were partially offset by a $321 thousand increase in salaries and benefits. Operations expenses decreased due to reduction in loan originations costs, office expenses, marketing costs, legal fees, and charitable contributions, partially offset by an operational loss from a fraudulently obtained loan charged off in the third quarter of 2024. Data processing expenses decreased due to one-time costs related to new technology implemented in 2023, while occupancy expenses decreased primarily due fully amortized leasehold improvements. The increase in salaries and benefits compared to the third quarter of 2023 reflected higher incentive compensation, medical expenses, retirement plan costs, and directors’ fees (due to the addition of a new director), partially offset by lower salaries from a restructuring of positions at the end of 2023.

Balance Sheet Review, Capital Management and Credit Quality

Assets at September 30, 2024 totaled $1.10 billion, an increase from $1.07 billion at June 30, 2024 and $1.03 billion at September 30, 2023. The increase in total assets from June 30, 2024 and one year ago was primarily due to an increase in cash and cash equivalents and in loans held-for-portfolio.

Cash and cash equivalents increased $13.8 million, or 10.2%, to $148.9 million at September 30, 2024, compared to $135.1 million at June 30, 2024, and increased $47.0 million, or 46.2%, from $101.9 million at September 30, 2023. The increase from the prior quarter and from one year ago was primarily due to the increase in deposits exceeding the increase in loans held-for-portfolio.

Investment securities increased $28 thousand, or 0.3%, to $10.2 million at September 30, 2024, compared to $10.1 million at June 30, 2024, and increased $17 thousand, or 0.2%, from $10.2 million at September 30, 2023. Held-to-maturity securities totaled $2.1 million at both September 30, 2024 and June 30, 2024, and totaled $2.2 million at September 30, 2023. Available-for-sale securities totaled $8.0 million at September 30, 2024, June 30, 2024 and September 30, 2023.

Loans held-for-portfolio were $901.7 million at September 30, 2024, compared to $889.3 million at June 30, 2024 and $875.4 million at September 30, 2023. The increase from to June 30, 2024, primarily resulted from growth in one-to-four family home loans, commercial and multifamily loans, as well as manufactured home and floating home loans, partially offset by decreases in construction and land loans and home equity loans. The increase in one-to-four family home loans was primarily due to new originations exceeding prepayments during the quarter, while the increase in commercial and multifamily loans primarily resulted from conversion of construction projects to permanent financing. The increase in manufactured home loans and floating home loans relates to continued strong demand for this type of financing in our market. The decrease in construction and land loans was primarily due to project completions and reduced demand caused by higher interest rates, which limited new financing opportunities. The decrease in home equity loans reflected normal payment fluctuations. Compared to September 30, 2024, the overall increase in loans held-for-portfolio was due to sustained strong loan demand and slower prepayment activity, with increases primarily related to commercial and multifamily loans, home equity loans, manufactured home loans and floating home loans.

Nonperforming assets (“NPAs”), which are comprised of nonaccrual loans (including nonperforming modified loans), other real estate owned (“OREO”) and other repossessed assets, decreased $420 thousand, or 4.7%, to $8.6 million at September 30, 2024, from $9.0 million at June 30, 2024 and increased $6.3 million, or 268.2%, from $2.3 million at September 30, 2023. The decrease in NPAs from June 30, 2024 was primarily due to the payoff of three loans totaling $175 thousand and one loan totaling $421 thousand returning to accrual status, partially offset by the addition of eight loans totaling $260 thousand to nonaccrual. The increase in NPAs from one year ago was primarily due to the placement of an additional $7.7 million of loans on nonaccrual status, which included a $3.7 million matured commercial real estate loan where the borrower is in the process of securing financing from another lender, a $2.4 million floating home loan, and a $985 thousand commercial real estate loan, all of which are well secured, and one manufactured home loan of $115 thousand that was repossessed in the first quarter of 2024. These additions were partially offset by the payoff of seven loans totaling $877 thousand, and normal payment amortization.

NPAs to total assets were 0.78%, 0.84% and 0.23% at September 30, 2024, June 30, 2024 and September 30, 2023, respectively. The allowance for credit losses on loans to total loans outstanding was 0.95% at September 30, 2024, compared to 0.96% at both June 30, 2024 and September 30, 2023. Net loan charge-offs for the third quarter of 2024 totaled $14 thousand, compared to $17 thousand for the second quarter of 2023, and $3 thousand for the third quarter of 2023.

The following table summarizes our NPAs at the dates indicated (dollars in thousands):

  September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Nonperforming Loans:                  
One-to-four family $ 745     $ 822     $ 835     $ 1,108     $ 1,137  
Home equity loans   338       342       83       84       86  
Commercial and multifamily   4,719       5,161       4,747             306  
Construction and land   25       28       29             78  
Manufactured homes   230       136       166       228       151  
Floating homes   2,377       2,417       3,192              
Commercial business   23                   2,135        
Other consumer   32       3       1       1       4  
Total nonperforming loans   8,489       8,909       9,053       3,556       1,762  
OREO and Other Repossessed Assets:                  
Commercial and multifamily               575       575       575  
Manufactured homes   115       115       115              
Total OREO and repossessed assets   115       115       690       575       575  
Total NPAs $ 8,604     $ 9,024     $ 9,743     $ 4,131     $ 2,337  
                   
Percentage of Nonperforming Loans:                  
One-to-four family   8.7 %     9.1 %     8.5 %     26.9 %     48.7 %
Home equity loans   3.9       3.8       0.9       2.0       3.7  
Commercial and multifamily   54.8       57.2       48.7             13.1  
Construction and land   0.3       0.3       0.3             3.3  
Manufactured homes   2.7       1.5       1.7       5.5       6.4  
Floating homes   27.6       26.8       32.8              
Commercial business   0.3                   51.7        
Other consumer   0.4                         0.2  
Total nonperforming loans   98.7       98.7       92.9       86.1       75.4  
Percentage of OREO and Other Repossessed Assets:                  
Commercial and multifamily               5.9       13.9       24.6  
Manufactured homes   1.3       1.3       1.2              
Total OREO and repossessed assets   1.3       1.3       7.1       13.9       24.6  
Total NPAs   100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
 

The following table summarizes the allowance for credit losses at the dates and for the periods indicated (dollars in thousands, unaudited):

  At or For the Quarter Ended:
  September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Allowance for Credit Losses on Loans                  
Balance at beginning of period $ 8,493     $ 8,598     $ 8,760     $ 8,438     $ 8,217  
(Release of) Provision for credit losses during the period   106       (88 )     (106 )     337       224  
Net charge-offs during the period   (14 )     (17 )     (56 )     (15 )     (3 )
Balance at end of period $ 8,585     $ 8,493     $ 8,598     $ 8,760     $ 8,438  
Allowance for Credit Losses on Unfunded Loan Commitments                  
Balance at beginning of period $ 245     $ 266     $ 193     $ 557     $ 706  
(Release of) Provision for credit   (98 )     (21 )     73       (364 )     (149 )
Balance at end of period   147       245       266       193       557  
Allowance for Credit Losses $ 8,732     $ 8,738     $ 8,864     $ 8,953     $ 8,995  
Allowance for credit losses on loans to total loans   0.95 %     0.96 %     0.96 %     0.98 %     0.96 %
Allowance for credit losses to total loans   0.97 %     0.98 %     0.99 %     1.00 %     1.03 %
Allowance for credit losses on loans to total nonperforming loans   101.13 %     95.33 %     94.97 %     246.34 %     478.89 %
Allowance for credit losses to total nonperforming loans   102.86 %     98.08 %     97.91 %     251.77 %     510.50 %
 

Deposits increased $23.4 million, or 2.6%, to $930.2 million at September 30, 2024, from $906.8 million at June 30, 2024 and increased $69.3 million, or 8.1%, from $860.9 million at September 30, 2023. The increase in deposits compared to the prior quarter-end was primarily a result of an increase of $17.0 million related to one new depositor relationship, as well as a $5.3 million increase in related party money market deposits. Compared to a year ago, the increase was primarily a result of an increase in certificate accounts and money market accounts, including $50.2 million of related party deposits, which helped fund organic loan growth. These increases were partially offset by decreases in noninterest-bearing and interest-bearing demand accounts and savings accounts, as interest rate sensitive clients shifted funds from lower-cost deposits, such as noninterest-bearing deposits, into higher rate money market and time deposits. Noninterest-bearing deposits increased $4.8 million, or 3.8%, to $129.7 million at September 30, 2024, compared to $124.9 million at June 30, 2024 and decreased $24.2 million, or 15.7%, from $153.9 million at September 30, 2023. Noninterest-bearing deposits represented 14.0%, 13.8% and 17.9% of total deposits at September 30, 2024, June 30, 2024 and September 30, 2023, respectively.

FHLB advances totaled $40.0 million at each of September 30, 2024, June 30, 2024, and September 30, 2023. FHLB advances are primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives. FHLB advances outstanding at September 30, 2024 had maturities ranging from late 2024 through early 2028. Subordinated notes, net totaled $11.7 million at each of September 30, 2024, June 30, 2024 and September 30, 2023.

Stockholders’ equity totaled $102.2 million at September 30, 2024, an increase of $892 thousand, or 0.9%, from $101.3 million at June 30, 2024, and an increase of $2.0 million, or 2.0%, from $100.2 million at September 30, 2023. The increase in stockholders’ equity from June 30, 2024 was primarily the result of $1.2 million of net income earned during the current quarter and a $127 thousand decrease in accumulated other comprehensive loss, net of tax, partially offset by the payment of $487 thousand in cash dividends to the Company’s stockholders.

Sound Financial Bancorp, Inc., a bank holding company, is the parent company of Sound Community Bank, which is headquartered in Seattle, Washington and has full-service branches in Seattle, Tacoma, Mountlake Terrace, Sequim, Port Angeles, Port Ludlow and University Place. Sound Community Bank is a Fannie Mae Approved Lender and Seller/Servicer with one loan production office located in the Madison Park neighborhood of Seattle. For more information, please visit www.soundcb.com.

Forward-Looking Statements Disclaimer

When used in this press release and in documents filed or furnished by Sound Financial Bancorp, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”), in the Company’s other press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events and may turn out to be wrong because of inaccurate assumptions we might make, because of the factors listed below or because of other factors that we cannot foresee that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made.

Factors which could cause actual results to differ materially, include, but are not limited to: adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation or deflation, a recession or slowed economic growth, as well as supply chain disruptions; changes in the interest rate environment, including increases and decreases in the Board of Governors of the Federal Reserve System (the Federal Reserve) benchmark rate and the duration at which such interest rate levels are maintained, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity; the impact of inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; changes in consumer spending, borrowing and savings habits; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; the Company’s ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company’s market area; secondary market conditions for loans; expectations regarding key growth initiatives and strategic priorities; environmental, social and governance goals and targets; results of examinations of the Company or the Bank by their regulators; increased competition; changes in management’s business strategies; legislative changes; changes in the regulatory and tax environments in which the Company operates; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on our third-party vendors; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest and other external events on our business; and other factors described in the Company’s latest Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and other documents filed with or furnished to the SEC, which are available at www.soundcb.com and on the SEC’s website at www.sec.gov. The risks inherent in these factors could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company and could negatively affect the Company’s operating and stock performance.

The Company does not undertake—and specifically disclaims any obligation—to revise any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statement.


CONSOLIDATED INCOME STATEMENTS

(Dollars in thousands, unaudited)

    For the Quarter Ended
    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Interest income   $ 14,838   $ 14,039     $ 13,760     $ 13,337     $ 12,686  
Interest expense     6,965     6,591       6,300       5,770       4,518  
Net interest income     7,873     7,448       7,460       7,567       8,168  
Provision for (release of) credit losses     8     (109 )     (33 )     (27 )     75  
Net interest income after provision for (release of) credit losses     7,865     7,557       7,493       7,594       8,093  
Noninterest income:                    
Service charges and fee income     628     761       612       576       700  
Earnings on bank-owned life insurance     186     134       177       222       88  
Mortgage servicing income     280     279       282       288       295  
Fair value adjustment on mortgage servicing rights     101     (116 )     (65 )     (96 )     (78 )
Net gain on sale of loans     40     74       90       76       76  
Other income         30                    
Total noninterest income     1,235     1,162       1,096       1,066       1,081  
Noninterest expense:                    
Salaries and benefits     4,469     4,658       4,543       3,802       4,148  
Operations     1,540     1,569       1,457       1,537       1,625  
Regulatory assessments     189     220       189       198       183  
Occupancy     414     397       444       458       458  
Data processing     1,067     910       1,017       1,311       1,296  
Net (gain) loss on OREO and repossessed assets         (17 )     6              
Total noninterest expense     7,679     7,737       7,656       7,306       7,710  
Income before provision for income taxes     1,421     982       933       1,354       1,464  
Provision for income taxes     267     187       163       143       295  
Net income   $ 1,154   $ 795     $ 770     $ 1,211     $ 1,169  
 

CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)

    For the Nine Months Ended September 30
      2024       2023  
Interest income   $ 42,638     $ 37,273  
Interest expense     19,856       10,990  
Net interest income     22,782       26,283  
(Release of) provision for credit losses     (134 )     (246 )
Net interest income after (release of) provision for credit losses     22,916       26,529  
Noninterest income:        
Service charges and fee income     2,001       1,951  
Earnings on bank-owned life insurance     498       957  
Mortgage servicing income     841       891  
Fair value adjustment on mortgage servicing rights     (81 )     (123 )
Net gain on sale of loans     205       264  
Other income     30        
Total noninterest income     3,494       3,940  
Noninterest expense:        
Salaries and benefits     13,670       13,333  
Operations     4,566       4,557  
Regulatory assessments     598       490  
Occupancy     1,255       1,352  
Data processing     2,995       3,077  
Net (gain) loss on OREO and repossessed assets     (10 )     13  
Total noninterest expense     23,074       22,822  
Income before provision for income taxes     3,336       7,647  
Provision for income taxes     617       1,419  
Net income   $ 2,719     $ 6,228  
 

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, unaudited)

    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
ASSETS                    
Cash and cash equivalents   $ 148,930     $ 135,111     $ 137,977     $ 49,690     $ 101,890  
Available-for-sale securities, at fair value     8,032       7,996       8,115       8,287       7,980  
Held-to-maturity securities, at amortized cost     2,139       2,147       2,157       2,166       2,174  
Loans held-for-sale     65       257       351       603       1,153  
Loans held-for-portfolio     901,733       889,274       897,877       894,478       875,434  
Allowance for credit losses – loans     (8,585 )     (8,493 )     (8,598 )     (8,760 )     (8,438 )
Total loans held-for-portfolio, net     893,148       880,781       889,279       885,718       866,996  
Accrued interest receivable     3,705       3,413       3,617       3,452       3,415  
Bank-owned life insurance, net     22,363       22,172       22,037       21,860       21,638  
Other real estate owned (“OREO”) and other repossessed assets, net     115       115       690       575       575  
Mortgage servicing rights, at fair value     4,665       4,540       4,612       4,632       4,681  
Federal Home Loan Bank (“FHLB”) stock, at cost     2,405       2,406       2,406       2,396       2,783  
Premises and equipment, net     4,807       4,906       6,685       5,240       5,204  
Right-of-use assets     3,779       4,020       4,259       4,496       4,732  
Other assets     6,777       6,995       4,500       6,106       6,955  
TOTAL ASSETS   $ 1,100,930     $ 1,074,859     $ 1,086,685     $ 995,221     $ 1,030,176  
LIABILITIES                    
Interest-bearing deposits   $ 800,480     $ 781,854     $ 788,217     $ 699,813     $ 706,954  
Noninterest-bearing deposits     129,717       124,915       128,666       126,726       153,921  
Total deposits     930,197       906,769       916,883       826,539       860,875  
Borrowings     40,000       40,000       40,000       40,000       40,000  
Accrued interest payable     908       760       719       817       588  
Lease liabilities     4,079       4,328       4,576       4,821       5,065  
Other liabilities     9,711       9,105       9,578       9,563       9,794  
Advance payments from borrowers for taxes and insurance     2,047       812       2,209       1,110       1,909  
Subordinated notes, net     11,749       11,738       11,728       11,717       11,707  
TOTAL LIABILITIES     998,691       973,512       985,693       894,567       929,938  
STOCKHOLDERS’ EQUITY:                    
Common stock     25       25       25       25       25  
Additional paid-in capital     28,296       28,198       28,110       27,990       28,112  
Retained earnings     74,840       74,173       73,907       73,627       73,438  
Accumulated other comprehensive loss, net of tax     (922 )     (1,049 )     (1,050 )     (988 )     (1,337 )
TOTAL STOCKHOLDERS’ EQUITY     102,239       101,347       100,992       100,654       100,238  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,100,930     $ 1,074,859     $ 1,086,685     $ 995,221     $ 1,030,176  
 

KEY FINANCIAL RATIOS
(unaudited)

    For the Quarter Ended
    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Annualized return on average assets     0.42 %     0.30 %     0.29 %     0.46 %     0.46 %
Annualized return on average equity     4.50 %     3.17 %     3.06 %     4.78 %     4.60 %
Annualized net interest margin(1)     2.98 %     2.92 %     2.95 %     3.04 %     3.38 %
Annualized efficiency ratio(2)     84.31 %     89.86 %     89.48 %     84.63 %     83.36 %
(1)   Net interest income divided by average interest earning assets.
(2)   Noninterest expense divided by total revenue (net interest income and noninterest income).
 

PER COMMON SHARE DATA
(unaudited)

    At or For the Quarter Ended
    September 30, 2024   June 30, 2024   March 31, 2024   December 31, 2023   September 30, 2023
Basic earnings per share   $ 0.45     $ 0.31     $ 0.30     $ 0.47     $ 0.45  
Diluted earnings per share   $ 0.45     $ 0.31     $ 0.30     $ 0.47     $ 0.45  
Weighted-average basic shares outstanding     2,544,233       2,540,538       2,539,213       2,542,175       2,553,773  
Weighted-average diluted shares outstanding     2,569,368       2,559,015       2,556,958       2,560,656       2,571,808  
Common shares outstanding at period-end     2,564,095       2,557,284       2,558,546       2,549,427       2,568,054  
Book value per share   $ 39.87     $ 39.63     $ 39.47     $ 39.48     $ 39.03  
 

AVERAGE BALANCE, AVERAGE YIELD EARNED, AND AVERAGE RATE PAID
(Dollars in thousands, unaudited)

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).

  Three Months Ended
  September 30, 2024   June 30, 2024   September 30, 2023
  Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/Rate   Average Outstanding Balance   Interest
Earned/
Paid
  Yield/Rate   Average Outstanding Balance   Interest
Earned/
Paid
  Yield/Rate
Interest-Earning Assets:                                  
Loans receivable $ 898,570     $ 12,876   5.70 %   $ 891,863     $ 12,320   5.56 %   $ 862,397     $ 11,505   5.29 %
Interest-earning cash   138,240       1,830   5.27 %     120,804       1,586   5.28 %     81,616       1,042   5.07 %
Investments   13,806       132   3.80 %     13,935       133   3.84 %     14,793       139   3.73 %
Total interest-earning assets $ 1,050,616       14,838   5.62 %     1,026,602     $ 14,039   5.50 %   $ 958,806       12,686   5.25 %
Interest-Bearing Liabilities:                                  
Savings and money market accounts $ 340,281       2,688   3.14 %   $ 301,454       2,115   2.82 %   $ 192,214       720   1.49 %
Demand and NOW accounts   148,252       151   0.41 %     153,739       148   0.39 %     194,561       173   0.35 %
Certificate accounts   303,632       3,524   4.62 %     317,496       3,731   4.73 %     293,820       2,984   4.03 %
Subordinated notes   11,745       168   5.69 %     11,735       168   5.76 %     11,703       168   5.70 %
Borrowings   40,000       434   4.32 %     40,000       429   4.31 %     42,815       473   4.38 %
Total interest-bearing liabilities $ 843,910       6,965   3.28 %   $ 824,424       6,591   3.22 %   $ 735,113       4,518   2.44 %
Net interest income/spread     $ 7,873   2.34 %       $ 7,448   2.28 %       $ 8,168   2.81 %
Net interest margin         2.98 %           2.92 %           3.38 %
                                   
Ratio of interest-earning assets to interest-bearing liabilities   124 %             125 %             130 %        
Noninterest-bearing deposits $ 132,762             $ 128,878             $ 151,298          
Total deposits   924,927     $ 6,363   2.74 %     901,567     $ 5,994   2.67 %     831,893     $ 3,877   1.85 %
Total funding (1)   976,672       6,965   2.84 %     953,302       6,591   2.78 %     886,411       4,518   2.02 %
(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.
 

  Nine Months Ended
  September 30, 2024   September 30, 2023
  Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/Rate   Average
Outstanding
Balance
  Interest
Earned/
Paid
  Yield/Rate
Interest-Earning Assets:                      
Loans receivable $ 895,300     $ 37,429   5.58 %   $ 865,357     $ 34,437   5.32 %
Interest-earning cash   122,194       4,832   5.28 %     70,094       2,447   4.67 %
Investments   12,607       377   3.99 %     13,962       389   3.73 %
Total interest-earning assets $ 1,030,101       42,638   5.53 %   $ 949,413       37,273   5.25 %
Interest-Bearing Liabilities:                      
Savings and money market accounts $ 308,845       6,669   2.88 %   $ 173,319       1,197   0.92 %
Demand and NOW accounts   153,897       440   0.38 %     216,753       587   0.36 %
Certificate accounts   312,176       10,950   4.69 %     273,564       7,182   3.51 %
Subordinated notes   11,735       504   5.74 %     11,693       504   5.76 %
Borrowings   40,000       1,293   4.32 %     45,280       1,520   4.49 %
Total interest-bearing liabilities $ 826,653       19,856   3.21 %   $ 720,609       10,990   2.04 %
Net interest income/spread     $ 22,782   2.32 %       $ 26,283   3.21 %
Net interest margin         2.95 %           3.70 %
                       
Ratio of interest-earning assets to interest-bearing liabilities   125 %             132 %        
Noninterest-bearing deposits $ 131,365             $ 161,051          
Total deposits   906,283     $ 18,059   2.66 %     824,687     $ 8,966   1.45 %
Total funding (1)   958,018       19,856   2.77 %     881,660       10,990   1.67 %
(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.
 

LOANS
(Dollars in thousands, unaudited)

    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Real estate loans:                    
One-to-four family   $ 271,702     $ 268,488     $ 279,213     $ 279,448     $ 280,556  
Home equity     25,199       26,185       24,380       23,073       21,313  
Commercial and multifamily     358,587       342,632       324,483       315,280       304,252  
Construction and land     85,724       96,962       111,726       126,758       118,619  
Total real estate loans     741,212       734,267       739,802       744,559       724,740  
Consumer Loans:                    
Manufactured homes     40,371       38,953       37,583       36,193       34,652  
Floating homes     86,155       81,622       84,237       75,108       73,716  
Other consumer     18,266       18,422       18,847       19,612       18,710  
Total consumer loans     144,792       138,997       140,667       130,913       127,078  
Commercial business loans     17,481       17,860       19,075       20,688       25,033  
Total loans     903,485       891,124       899,544       896,160       876,851  
Less:                    
Premiums     736       754       808       829       850  
Deferred fees, net     (2,488 )     (2,604 )     (2,475 )     (2,511 )     (2,267 )
Allowance for credit losses – loans     (8,585 )     (8,493 )     (8,598 )     (8,760 )     (8,438 )
Total loans held-for-portfolio, net   $ 893,148     $ 880,781     $ 889,279     $ 885,718     $ 866,996  
 

DEPOSITS
(Dollars in thousands, unaudited)

    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Noninterest-bearing demand   $ 129,717     $ 124,915     $ 128,666     $ 126,726     $ 153,921  
Interest-bearing demand     148,740       152,829       159,178       168,346       185,441  
Savings     61,455       63,368       65,723       69,461       76,729  
Money market(1)     285,655       253,873       241,976       154,044       143,558  
Certificates     304,630       311,784       321,340       307,962       301,226  
Total deposits   $ 930,197     $ 906,769     $ 916,883     $ 826,539     $ 860,875  
(1)   Includes $5.0 million of brokered deposits at December 31, 2023.
 

CREDIT QUALITY DATA
(Dollars in thousands, unaudited)

    At or For the Quarter Ended
    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
Total nonperforming loans   $ 8,489     $ 8,909     $ 9,053     $ 3,556     $ 1,762  
OREO and other repossessed assets     115       115       690       575       575  
Total nonperforming assets   $ 8,604     $ 9,024     $ 9,743     $ 4,131     $ 2,337  
Net charge-offs during the quarter   $ (14 )   $ (17 )   $ (56 )   $ (15 )   $ (3 )
Provision for (release of) credit losses during the quarter     8       (109 )     (33 )     (27 )     75  
Allowance for credit losses – loans     8,585       8,493       8,598       8,760       8,438  
Allowance for credit losses – loans to total loans     0.95 %     0.96 %     0.96 %     0.98 %     0.96 %
Allowance for credit losses – loans to total nonperforming loans     101.13 %     95.33 %     94.97 %     246.34 %     478.89 %
Nonperforming loans to total loans     0.94 %     1.00 %     1.01 %     0.40 %     0.20 %
Nonperforming assets to total assets     0.78 %     0.84 %     0.90 %     0.42 %     0.23 %
 

OTHER STATISTICS
(Dollars in thousands, unaudited)

    At or For the Quarter Ended
    September 30,
2024
  June 30,
2024
  March 31,
2024
  December 31,
2023
  September 30,
2023
                     
Total loans to total deposits     97.13 %     98.27 %     98.11 %     108.42 %     101.86 %
Noninterest-bearing deposits to total deposits     13.95 %     13.78 %     14.03 %     15.33 %     17.88 %
                     
Average total assets for the quarter   $ 1,095,404     $ 1,070,579     $ 1,062,036     $ 1,033,985     $ 1,005,223  
Average total equity for the quarter   $ 102,059     $ 100,961     $ 101,292     $ 100,612     $ 100,927  
                                         

Contact

Financial:      
Wes Ochs
Executive Vice President/CFO
(206) 436-8587
 
Media:      
Laurie Stewart
President/CEO
(206) 436-1495

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