• Sound Financial Bancorp, Inc. Q4 2023 Results

    المصدر: Nasdaq GlobeNewswire / 26 يناير 2024 17:30:01   America/Chicago

    SEATTLE, Jan. 26, 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 December 31, 2023, or $0.47 diluted earnings per share, as compared to net income of $1.2 million, or $0.45 diluted earnings per share, for the quarter ended September 30, 2023, and $2.9 million, or $1.12 diluted earnings per share, for the quarter ended December 31, 2022. The Company also announced today that its Board of Directors declared a cash dividend on Company common stock of $0.19 per share, payable on February 21, 2024 to stockholders of record as of the close of business on February 7, 2024.

    Comments from the President and Chief Executive Officer

    “In the fourth quarter, we grew both total and average loan balances, demonstrating our ability to meet the diverse needs of our clients in the communities we serve. Strategically, we opted to decrease reciprocal deposit funding at year end; however, we continue to view this tool as a valuable instrument for effective management of liquidity and our balance sheet,” remarked Laurie Stewart, President and Chief Executive Officer. "Additionally, we restructured five positions within the Bank, aligning with our commitment to optimize production staff size and minimize operating expenses. This decision stems from the ongoing subdued demand in the mortgage banking sector and the operational efficiencies derived from our technological enhancements," concluded Ms. Stewart.

    Q4 2023 Financial Performance
    Total assets decreased $35.0 million or 3.4% to $995.2 million at December 31, 2023, from $1.03 billion at September 30, 2023, and increased $18.9 million or 1.9% from $976.4 million at December 31, 2022.
    		  Net interest income decreased $601 thousand or 7.4% to $7.6 million for the quarter ended December 31, 2023, from $8.2 million for the quarter ended September 30, 2023, and decreased $2.1 million or 21.9% from $9.7 million for the quarter ended December 31, 2022.

      
      Net interest margin ("NIM"), annualized, was 3.04% for the quarter ended December 31, 2023, compared to 3.38% for the quarter ended September 30, 2023 and 4.05% for the quarter ended December 31, 2022.
    Loans held-for-portfolio increased $19.0 million or 2.2% to $894.5 million at December 31, 2023, compared to $875.4 million at September 30, 2023, and increased $28.5 million or 3.3% from $866.0 million at December 31, 2022.

    		  
      A$27 thousand release of provision for credit losses was recorded for the quarter ended December 31, 2023, compared to $75 thousand and $78 thousand provision for credit losses for the quarters ended September 30, 2023 and December 31, 2022, respectively. At December 31, 2023, the allowance for credit losses on loans to total loans outstanding was 0.98%.
    Total deposits decreased $34.3 million or 4.0% to $826.5 million at December 31, 2023, from $860.9 million at September 30, 2023, and increased $17.8 million or 2.2% from $808.8 million at December 31, 2022. Noninterest-bearing deposits decreased $27.2 million or 17.7% to $126.7 million at December 31, 2023 compared to $153.9 million at September 30, 2023, and decreased $46.5 million or 26.8% compared to $173.2 million at December 31, 2022.  
         
    The loans-to-deposits ratio was 108% at December 31, 2023, compared to 102% at September 30, 2023 and 107% at December 31, 2022.

    		  Earnings on bank-owned life insurance (“BOLI”) were $222 thousand for the quarter ended December 31, 2023, compared to $88 thousand for the quarter ended September 30, 2023 and $175 thousand for the quarter ended December 31, 2022.
      Net gain on sale of loans was $76 thousand for both the quarter ended December 31, 2023 and the quarter ended September 30, 2023, and $49 thousand for the quarter ended December 31, 2022.
    Total nonperforming loans increased $1.8 million or 101.8% to $3.6 million at December 31, 2023, from $1.8 million at September 30, 2023, and increased $598 thousand or 20.2% from $3.0 million at December 31, 2022. Nonperforming loans to total loans were 0.40% and the allowance for credit losses on loans to total nonperforming loans was 246.34% at December 31, 2023.

    		  
      The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at December 31, 2023.
         

    Operating Results

    Net interest income decreased $601 thousand, or 7.4%, to $7.6 million for the quarter ended December 31, 2023, compared to $8.2 million for the quarter ended September 30, 2023, and decreased $2.1 million, or 21.9%, from $9.7 million for the quarter ended December 31, 2022. The decrease in the current quarter compared to the prior quarter was primarily the result of increases in funding costs, primarily the rates paid on and balances of money market and certificate accounts, partially offset by an increase in the yield earned on interest-earning assets. The decrease compared to the fourth quarter of 2022 was primarily the result of a higher overall funding costs, primarily due to an increase in rates, partially offset by a higher average balance of and yield earned on average interest-earning assets.

    Interest income increased $651 thousand, or 5.1%, to $13.3 million for the quarter ended December 31, 2023, compared to $12.7 million for the quarter ended September 30, 2023, and increased $1.5 million, or 12.8%, from $11.8 million for the quarter ended December 31, 2022. The increase from the prior quarter was primarily due to higher average balances of loans and interest-bearing cash, coupled with an 11 basis point and 20 basis point increase in the average yield on loans and interest-bearing cash, respectively, following continued increases in the targeted federal funds rate during the first three quarters of 2023. This increase was partially offset by a decline in the average balance of and yield on investments. The increase in interest income from the same quarter last year was due primarily to higher average balances of loans and interest-bearing cash, and a 30 basis point increase in the average yield on loans, a 194 basis point increase in the average yield on interest-bearing cash, and a 26 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 $528 thousand, or 4.6%, to $12.0 million for the quarter ended December 31, 2023, compared to $11.5 million for the quarter ended September 30, 2023, and increased $1.0 million, or 8.6%, from $11.1 million for the quarter ended December 31, 2022. The average balance of total loans was $884.7 million for the quarter ended December 31, 2023, up from $862.4 million for the quarter ended September 30, 2023 and $861.4 million for the quarter ended December 31, 2022. The average yield on total loans was 5.40% for the quarter ended December 31, 2023, up from 5.29% for the quarter ended September 30, 2023 and 5.10% for the quarter ended December 31, 2022. The increase in the average loan yield during the current quarter compared to the prior quarter was primarily due to the origination of loans at higher interest rates. The increase in the average balance during the current quarter compared to the prior quarter was primarily due to growth in real estate loans, in particular, commercial and multifamily and construction and land loans, and to a lesser extent consumer loans, partially offset by a decrease in commercial business loans. The increase in the average loan yield during the current quarter compared to the fourth quarter of 2022 was primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates. The increase in the average balance of loans during the current quarter compared to the fourth quarter of 2022 was primarily due to loan growth across all categories.

    Interest income on investments decreased $10 thousand to $129 thousand for the quarter ended December 31, 2023, compared to $139 thousand for the quarter ended September 30, 2023, and decreased $16 thousand from $145 thousand for the quarter ended December 31, 2022, primarily due to lower average balances. Interest income on interest-bearing cash increased $133 thousand to $1.2 million for the quarter ended December 31, 2023, compared to $1.0 million for the quarter ended September 30, 2023, and increased $579 thousand from $596 thousand for the quarter ended December 31, 2022, due to a higher average yield on and higher average balances of interest-bearing cash.

    Interest expense increased $1.3 million, or 27.7%, to $5.8 million for the quarter ended December 31, 2023, from $4.5 million for the quarter ended September 30, 2023, and increased $3.6 million, or 170.8%, from $2.1 million for the quarter ended December 31, 2022. The increase in interest expense during the current quarter from the prior quarter was primarily the result of $66.4 million and $6.2 million increases in the average balance of savings and money market accounts and certificate accounts, respectively, as well as higher average rates paid on all categories of interest-bearing deposits (other than demand and NOW accounts), partially offset by a $24.7 million decrease in the average balance of demand and NOW accounts and a $2.7 million decrease in the average balance of borrowings, comprised of Federal Home Loan Bank ("FHLB") advances. The increase in interest expense during the current quarter from the comparable period a year ago was primarily the result of a $113.8 million increase in the average balance of certificate accounts and an $84.2 million increase in the average balance of savings and money market accounts, as well as higher average rates paid on all interest-bearing liabilities (excluding subordinated notes), partially offset by a $97.2 million decrease in the average balance of demand and NOW accounts and a $19.2 million decrease in the average balance of FHLB advances. The average cost of FHLB advances was 4.26% for the quarter ended December 31, 2023, down from 4.38% for the quarter ended September 30, 2023, and up from 3.90% for the quarter ended December 31, 2022.

    NIM (annualized) was 3.04% for the quarter ended December 31, 2023, down from 3.38% for the quarter ended September 30, 2023 and 4.05% for the quarter ended December 31, 2022. The decrease in NIM from the prior quarter 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 money market and certificate accounts at higher interest rates. The decrease from the same quarter a year ago was the result of an increase in the cost of funding, partially offset by an increase in interest income on interest-earning assets, driven by the higher average balance of and yield earned on loans and interest-bearing cash.

    A release of provision for credit losses of $27 thousand was recorded for the quarter ended December 31, 2023, consisting of a provision for credit losses on loans of $337 thousand and a release of reserve for unfunded loan commitments of $364 thousand. This compared to a provision for credit losses of $75 thousand for the quarter ended September 30, 2023, consisting of provision for credit losses on loans of $224 thousand and a release of reserve for unfunded loan commitments of $149 thousand, and a provision for credit losses of $78 thousand for the quarter ended December 31, 2022, consisting of a provision for loan losses of $125 thousand and a release of the reserve for unfunded loan commitments of $47 thousand. The Company adopted the CECL standard as of January 1, 2023. All amounts prior to January 1, 2023 reflect our use of the incurred loss methodology to compute our allowance for credit losses, which is not directly comparable to the new, current expected credit loss methodology. The decrease in the provision for credit losses for the quarter ended December 31, 2023 compared to the quarter ended September 30, 2023 resulted primarily from enhancements to our loan loss methodology, which resulted in lower reserves on our unfunded loan portfolio that offset the increase in the allowance for credit losses on loans due to portfolio growth. In addition, expected loss estimates consider various factors including market conditions, customer specific information, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay.

    Noninterest income decreased $15 thousand, or 1.4%, to $1.1 million for the quarter ended December 31, 2023, compared to $1.1 million for the quarter ended September 30, 2023, and increased $48 thousand, or 4.7% from $1.0 million for the quarter ended December 31, 2022. The decrease from the prior quarter was primarily related to a $124 thousand decrease in service charges and fee income, an $18 thousand downward adjustment in fair value adjustment on mortgage servicing rights due to lower market interest rates and a smaller servicing portfolio, and a $7 thousand decrease in servicing income due to a smaller servicing portfolio. These decreases were partially offset by a $134 thousand increase in earnings on BOLI policies due to higher market rates. The increase in noninterest income from the comparable period in 2022 was primarily due to a $47 thousand increase in the cash surrender value of BOLI, a $31 thousand increase improvement in the fair value adjustment on mortgage servicing rights due to higher market rates offset by the portfolio paying down at a faster speed than we are replacing the loans, and a $27 thousand increase in net gain on sale of loans as a result of increased sales volume. Loans sold during the quarter ended December 31, 2023, totaled $4.5 million, compared to $4.4 million and $3.5 million of loans sold during the quarters ended September 30, 2023 and December 31, 2022, respectively.

    Noninterest expense decreased $404 thousand, or 5.2%, to $7.3 million for the quarter ended December 31, 2023, compared to $7.7 million for the quarter ended September 30, 2023, and increased $141 thousand, or 2.0%, from $7.2 million for the quarter ended December 31, 2022. The decrease from the quarter ended September 30, 2023 was primarily a result of lower salaries and benefits and operations expense, partially offset by higher regulatory assessments. Salaries and employee benefits decreased $346 thousand during the quarter ended December 31, 2023 compared to the prior quarter due to lower wages as a result of a restructuring of positions within the Bank, a lower incentive compensation accrual, lower commissions expense and lower payroll taxes associated with the aforementioned decreases, as well as a reversal of vacation expense due to forfeited hours at the end of the year primarily by those holding officer and senior leadership positions. Operations expense decreased $88 thousand primarily due to decreases in various expenses, including debit card processing, communications and marketing partially due to timing of transactions and the level of transactional activity. The increase in noninterest expense compared to the quarter ended December 31, 2022 was primarily due to a $470 thousand increase in data processing expenses due to software-related costs for new technology being implemented at the Bank and higher processing charges related to a higher volume of transactional activity, and, to a lesser extent, a $62 thousand increase in regulatory assessments and a $40 thousand increase in occupancy expense. These increases were partially offset by a decrease in salaries and benefits of $432 thousand, reflecting a decrease in incentive compensation as a result of fewer loans originated, changes to incentive compensation programs, including the addition of non-production performance requirements, and lower commission expense related to a decline in mortgage originations, partially offset by higher wages, lower deferred compensation and higher medical expense.

    Balance Sheet Review, Capital Management and Credit Quality

    Assets at December 31, 2023 totaled $995.2 million, down from $1.03 billion at September 30, 2023 and up from $976.4 million at December 31, 2022. The decrease in total assets from September 30, 2023 was primarily due to an decrease in cash and cash equivalents, partially offset by an increase in loans held-for-portfolio. The increase from one year ago was primarily a result of an increase in loans held-for-portfolio, partially offset by a lower balance of cash and cash equivalents and investment securities.

    Cash and cash equivalents decreased $52.2 million, or 51.2%, to $49.7 million at December 31, 2023, compared to $101.9 million at September 30, 2023, and decreased $8.1 million, or 14.1%, from $57.8 million at December 31, 2022. The decrease from September 30, 2023 was primarily due to the strategic decision to sell reciprocal deposits at the end of the year. The decrease from one year ago was primarily due to the increase in loans held-for-portfolio exceeding increases in deposits.

    Investment securities increased $299 thousand, or 2.9%, to $10.5 million at December 31, 2023, compared to $10.2 million at September 30, 2023, and decreased $2.0 million, or 15.7%, from $12.4 million at December 31, 2022. Held-to-maturity securities totaled $2.2 million at December 31, 2023, September 30, 2023, and December 31, 2022. Available-for-sale securities totaled $8.3 million at December 31, 2023, compared to $8.0 million at September 30, 2023 and $10.2 million at December 31, 2022. The increase in available-for-sale securities from the prior quarter-end was primarily due to lower net unrealized losses resulting from an increase in market values during the current quarter, offset by regularly scheduled payments. The decrease from one year ago was primarily due to the call of one municipal bond in the fourth quarter of 2022, the maturity of $1.6 million in treasury securities in the first quarter of 2023, regularly scheduled payments and maturities, and net unrealized losses resulting from the increases in market interest rates during the past 12 months.

    Loans held-for-portfolio increased to $894.5 million at December 31, 2023, from $875.4 million at September 30, 2023 and $866.0 million at December 31, 2022. The increase in loans held-for-portfolio at December 31, 2023, compared to September 30, 2023, primarily resulted from increases across most loan categories, excluding one-to-four family and commercial business loans, with the largest increases occurring in commercial and multifamily loans and construction and land loans. The increase in commercial and multifamily loans from September 30, 2023 primarily resulted from conversion of construction projects to permanent financing. The increases in construction and land loans from September 30, 2023 was primarily due to new originations and progress fundings. The increase in loans held-for-portfolio at December 31, 2023, compared to one year ago, primarily resulted from increases across all loan categories, excluding commercial business loans. The increase from December 31, 2022 in loans held-for-portfolio primarily resulted continued strong loan demand and slower prepayments.

    Nonperforming assets (“NPAs”), which are comprised of nonaccrual loans, including nonperforming loan modifications, other real estate owned (“OREO”) and other repossessed assets, increased $1.8 million, or 76.8%, to $4.1 million at December 31, 2023, from $2.3 million at September 30, 2023 and increased $513 thousand, or 14.2%, from $3.6 million at December 31, 2022. The increase in NPAs from the prior quarter-end was primarily due to the addition of two loans totaling $2.3 million to nonaccrual status, partially offset by payoffs, the return of four loans to accrual status, and normal payment amortization. The increase from one year ago was primarily due to $2.9 million in additions, which included a $2.1 million business term loan, $649 thousand in four one-to-four family real estate loans, and $142 thousand in two manufactured home loans, partially offset by the payoff of $1.5 million in nonperforming one-to-four family real estate loans related to a single borrower, the write-off of one residential property for $84 thousand, and other payoffs and normal amortization.

    NPAs to total assets were 0.42%, 0.23% and 0.37% at December 31, 2023, September 30, 2023 and December 31, 2022, respectively. The allowance for credit losses on loans to total loans outstanding was 0.98%, 0.96% and 0.88% at December 31, 2023, September 30, 2023 and December 31, 2022, respectively. Net loan charge-offs for the fourth quarter of 2023 totaled $15 thousand, compared to $3 thousand for the third quarter of 2023, and $15 thousand for the fourth quarter of 2022.

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

     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Nonperforming Loans:         
    One-to-four family$1,108  $1,137  $914  $697  $2,135 
    Home equity loans 84   86   88   138   142 
    Commercial and multifamily —   306   323   —   — 
    Construction and land —   78   25   322   324 
    Manufactured homes 228   151   156   134   96 
    Commercial business 2,135   —   —   —   — 
    Other consumer 1   4   5   1   262 
    Total nonperforming loans 3,556   1,762   1,511   1,292   2,959 
    OREO and Other Repossessed Assets:         
    One-to-four family —   —   —   —   84 
    Commercial and multifamily 575   575   575   575   575 
    Total OREO and repossessed assets 575   575   575   575   659 
    Total NPAs$4,131  $2,337  $2,086  $1,867  $3,618 
              
    Percentage of Nonperforming Loans:         
    One-to-four family 26.9%  48.7%  43.8%  37.3%  59.0%
    Home equity loans 2.0   3.7   4.2   7.4   3.9 
    Commercial and multifamily —   13.1   15.5   —   — 
    Construction and land —   3.3   1.2   17.3   9.0 
    Manufactured homes 5.5   6.5   7.5   7.2   2.7 
    Commercial business 51.7   —   —   —   — 
    Other consumer —   0.2   0.2   —   7.2 
    Total nonperforming loans 86.1   75.4   72.4   69.2   81.8 
    Percentage of OREO and Other Repossessed Assets:         
    One-to-four family —   —   —   —   2.3 
    Commercial and multifamily 13.9   24.6   27.6   30.8   15.9 
    Total OREO and repossessed assets 13.9   24.6   27.6   30.8   18.2 
    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:
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Allowance for Credit Losses on Loans         
    Balance at beginning of period$8,438  $8,217  $8,532  $7,599  $7,489 
    Adoption of ASU 2016-13(1) —   —   —   760   — 
    Provision for (release of) credit losses during the period 337   224   (242)  245   125 
    Net charge-offs during the period (15)  (3)  (73)  (72)  (15)
    Balance at end of period$8,760  $8,438  $8,217  $8,532  $7,599 
    Reserve for unfunded loan commitments         
    Balance at beginning of period$557  $706  $795  $335  $382 
    Adoption of ASU 2016-13(1) —   —   —   695   — 
    Provision for (reversal of) credit losses (364)  (149)  (89)  (235)  (47)
    Balance at end of period 193   557   706   795   335 
    Allowance for credit losses$8,953  $8,995  $8,923  $9,327  $7,934 
    Allowance for credit losses on loans to total loans 0.98%  0.96%  0.96%  0.98%  0.88%
    Allowance for credit losses to total loans 1.00%  1.03%  1.04%  1.07%  0.92%
    Allowance for credit losses on loans to total nonperforming loans 246.34%  478.89%  543.81%  660.37%  256.81%
    Allowance for credit losses to total nonperforming loans 251.77%  510.50%  590.68%  721.88%  268.13%

    (1) Represents the impact of adopting ASU 2016-13, Financial Instruments — Credit Losses on January 1, 2023. Since that date, as a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses has been based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.


    Deposits decreased $34.3 million, or 4.0%, to $826.5 million at December 31, 2023, from $860.9 million at September 30, 2023 and increased $17.8 million, or 2.2%, from $808.8 million at December 31, 2022. The decrease in deposits compared to the prior quarter-end was primarily a result of the movement of reciprocal deposits off balance sheet for strategic objectives at year-end. The increase in deposits compared to one year ago was a result of an increase in certificate accounts and money market accounts, including $5.0 million of brokered deposits, which were primarily used to fund organic loan growth, partially offset by decreases in noninterest-bearing and interest-bearing demand accounts and savings accounts as interest rate sensitive clients moved a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market and time deposits. Our noninterest-bearing deposits decreased $27.2 million, or 17.7%, to $126.7 million at December 31, 2023, compared to $153.9 million at September 30, 2023 and decreased $46.5 million, or 26.8%, from $173.2 million at December 31, 2022. Noninterest-bearing deposits represented 15.3%, 17.9% and 21.4% of total deposits at December 31, 2023, September 30, 2023 and December 31, 2022, respectively.

    FHLB advances totaled $40.0 million at both December 31, 2023 and September 30, 2023, compared to $43.0 million at December 31, 2022. 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 December 31, 2023 had maturities ranging from late 2024 through early 2028. Subordinated notes, net totaled $11.7 million at each of December 31, 2023, September 30, 2023 and December 31, 2022.

    Stockholders’ equity totaled $100.7 million at December 31, 2023, an increase of $416 thousand, or 0.4%, from $100.2 million at September 30, 2023, and an increase of $2.9 million, or 3.0%, from $97.7 million at December 31, 2022. The increase in stockholders’ equity from September 30, 2023 was primarily the result of $1.2 million of net income earned during the current quarter and a $349 thousand decrease in accumulated other comprehensive loss, net of tax, partially offset by $738 thousand in stock repurchases and the payment of $488 thousand in cash dividends to Company stockholders. In addition, stockholders' equity at both December 31, 2023 and September 30, 2023 was negatively impacted by the adoption of CECL in the first quarter of 2023, which resulted in an after-tax decrease to opening retained earnings of $1.1 million.

    Sound Financial Bancorp, Inc., a bank holding company, is the parent company of Sound Community Bank, and is headquartered in Seattle, Washington with 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, Washington. 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: potential 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 potential recession or slowed economic growth, as well as supply chain disruptions; changes in the interest rate environment, including the past increases in the Board of Governors of the Federal Reserve System (the Federal Reserve) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing high 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; 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 the third-party vendors who perform several of our critical processing functions; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crisis, acts of war or terrorism, 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 Securities and Exchange Commission, 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
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Interest income$13,337  $12,686  $12,412  $12,174  $11,819 
    Interest expense 5,770   4,518   3,668   2,803   2,131 
    Net interest income 7,567   8,168   8,744   9,371   9,688 
    (Release of) provision for credit losses(1) (27)  75   (331)  10   78 
    Net interest income after (release of) provision for credit losses 7,594   8,093   9,075   9,361   9,610 
    Noninterest income:         
    Service charges and fee income 576   700   670   581   618 
    Earnings on bank-owned life insurance 222   88   718   151   175 
    Mortgage servicing income 288   295   297   299   303 
    Fair value adjustment on mortgage servicing rights (96)  (78)  96   (140)  (127)
    Net gain on sale of loans 76   76   110   78   49 
    Total noninterest income 1,066   1,081   1,891   969   1,018 
    Noninterest expense:         
    Salaries and benefits 3,802   4,148   4,700   4,485   4,234 
    Operations 1,537   1,625   1,491   1,441   1,536 
    Regulatory assessments 198   183   154   153   136 
    Occupancy 458   458   435   459   418 
    Data processing 1,311   1,296   788   993   841 
    Net (gain) loss on OREO and repossessed assets —   —   (71)  84   — 
    Total noninterest expense 7,306   7,710   7,497   7,615   7,165 
    Income before provision for income taxes 1,354   1,464   3,469   2,715   3,463 
    Provision for income taxes 143   295   577   547   539 
    Net income$1,211  $1,169  $2,892  $2,168  $2,924 

    (1) Amounts for periods prior to January 1, 2023 include the reclassification of the provision for (release of) unfunded loan commitment expense from operations expense for comparability purposes. However, these prior period amounts were calculated using the previously applied incurred loss methodology, rather than the current expected credit loss methodology adopted on January 1, 2023, and the balances are not directly comparable.



    CONSOLIDATED INCOME STATEMENTS
    (Dollars in thousands, unaudited)

     For theYear Ended December 31
      2023   2022 
    Interest income$50,609  $39,795 
    Interest expense 16,759   4,500 
    Net interest income 33,850   35,295 
    (Release of) provision for credit losses(1) (273)  1,156 
    Net interest income after (release of) provision for credit losses 34,123   34,139 
    Noninterest income:   
    Service charges and fee income 2,527   2,368 
    Earnings on bank-owned life insurance 1,179   219 
    Mortgage servicing income 1,179   1,242 
    Fair value adjustment on mortgage servicing rights (219)  207 
    Net gain on sale of loans 340   546 
    Total noninterest income 5,006   4,582 
    Noninterest expense:   
    Salaries and benefits 17,135   16,415 
    Operations 6,095   5,881 
    Regulatory assessments 688   452 
    Occupancy 1,810   1,737 
    Data processing 4,388   3,360 
    Net loss on OREO and repossessed assets 13   — 
    Total noninterest expense 30,129   27,845 
    Income before provision for income taxes 9,000   10,876 
    Provision for income taxes 1,561   2,072 
    Net income$7,439  $8,804 

    (1) Amounts for the year ended December 31, 2022 include the reclassification of the provision for (release of) unfunded loan commitment expense from operations expense for comparability purposes. However, the prior period amount was calculated using the previously applied incurred loss methodology, rather than the current expected credit loss methodology adopted on January 1, 2023, and the balance is not directly comparable.



    CONSOLIDATED BALANCE SHEET
    (Dollars in thousands, unaudited)

     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    ASSETS         
    Cash and cash equivalents$49,690  $101,890  $100,169  $81,580  $57,836 
    Available-for-sale securities, at fair value 8,287   7,980   8,398   8,601   10,207 
    Held-to-maturity securities, at amortized cost 2,166   2,174   2,182   2,190   2,199 
    Loans held-for-sale 603   1,153   1,716   1,414   — 
    Loans held-for-portfolio 894,478   875,434   855,429   870,545   865,981 
    Allowance for credit losses - loans (8,760)  (8,438)  (8,217)  (8,532)  (7,599)
    Total loans held-for-portfolio, net 885,718   866,996   847,212   862,013   858,382 
    Accrued interest receivable 3,452   3,415   3,100   3,152   3,083 
    Bank-owned life insurance, net 21,860   21,638   21,550   21,465   21,314 
    Other real estate owned ("OREO") and other repossessed assets, net 575   575   575   575   659 
    Mortgage servicing rights, at fair value 4,632   4,681   4,726   4,587   4,687 
    Federal Home Loan Bank ("FHLB") stock, at cost 2,396   2,783   3,583   2,583   2,832 
    Premises and equipment, net 5,240   5,204   5,321   5,370   5,513 
    Right-of-use assets 4,496   4,732   4,966   5,200   5,102 
    Other assets 6,106   6,955   7,276   5,633   4,537 
    TOTAL ASSETS$995,221  $1,030,176  $1,010,774  $1,004,363  $976,351 
    LIABILITIES         
    Interest-bearing deposits$699,813  $706,954  $663,765  $668,568  $635,567 
    Noninterest-bearing deposits 126,726   153,921   158,488   173,079   173,196 
    Total deposits 826,539   860,875   822,253   841,647   808,763 
    Borrowings 40,000   40,000   60,000   35,000   43,000 
    Accrued interest payable 817   588   619   385   395 
    Lease liabilities 4,821   5,065   5,306   5,543   5,448 
    Other liabilities 9,563   9,794   10,243   9,398   8,318 
    Advance payments from borrowers for taxes and insurance 1,110   1,909   732   2,099   1,046 
    Subordinated notes, net 11,717   11,707   11,697   11,686   11,676 
    TOTAL LIABILITIES 894,567   929,938   910,850   905,758   878,646 
    STOCKHOLDERS' EQUITY:         
    Common stock 25   25   25   26   26 
    Additional paid-in capital 27,990   28,112   28,070   28,251   28,004 
    Retained earnings 73,627   73,438   72,923   71,362   70,792 
    Accumulated other comprehensive loss, net of tax (988)  (1,337)  (1,094)  (1,034)  (1,117)
    TOTAL STOCKHOLDERS' EQUITY 100,654   100,238   99,924   98,605   97,705 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$995,221  $1,030,176  $1,010,774  $1,004,363  $976,351 



    KEY FINANCIAL RATIOS
    (unaudited)

     For the Quarter Ended
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Annualized return on average assets 0.46%  0.46%  1.17%  0.88%  1.16%
    Annualized return on average equity 4.78%  4.60%  11.66%  8.88%  11.94%
    Annualized net interest margin(1) 3.04%  3.38%  3.71%  4.01%  4.05%
    Annualized efficiency ratio(2) 84.63%  83.36%  70.49%  73.65%  66.93%

    (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
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Basic earnings per share$0.47  $0.45  $1.12  $0.84  $1.13 
    Diluted earnings per share$0.47  $0.45  $1.11  $0.83  $1.12 
    Weighted-average basic shares outstanding 2,542,175   2,553,773   2,574,677   2,578,413   2,565,407 
    Weighted-average diluted shares outstanding 2,560,656   2,571,808   2,591,233   2,604,043   2,600,905 
    Common shares outstanding at period-end 2,549,427   2,568,054   2,573,223   2,601,443   2,583,619 
    Book value per share$39.48  $39.03  $38.83  $37.90  $37.82 



    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
     December 31, 2023 September 30, 2023 December 31, 2022
     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$884,677  $12,033 5.40% $862,397  $11,505 5.29% $861,371  $11,078 5.10%
    Interest-bearing cash 88,401   1,175 5.27%  81,616   1,042 5.07%  70,961   596 3.33%
    Investments 14,479   129 3.53%  14,793   139 3.73%  17,541   145 3.28%
    Total interest-earning assets$987,557  $13,337 5.36% $958,806  $12,686 5.25% $949,873  $11,819 4.94%
    Interest-Bearing Liabilities:                 
    Savings and money market accounts$258,583  $1,586 2.43% $192,214  $720 1.49% $174,410  $88 0.20%
    Demand and NOW accounts 169,816   149 0.35%  194,561   173 0.35%  267,043   280 0.42%
    Certificate accounts 300,042   3,436 4.54%  293,820   2,984 4.03%  186,277   1,011 2.15%
    Subordinated notes 11,714   168 5.69%  11,703   168 5.70%  11,669   168 5.71%
    Borrowings 40,109   431 4.26%  42,815   473 4.38%  59,348   584 3.90%
    Total interest-bearing liabilities$780,264   5,770 2.93% $735,113   4,518 2.44% $698,747   2,131 1.21%
    Net interest income/spread  $7,567 2.42%   $8,168 2.81%   $9,688 3.73%
    Net interest margin    3.04%     3.38%     4.05%
                      
    Ratio of interest-earning assets to interest-bearing liabilities 127%      130%      136%    
    Noninterest-bearing deposits$134,857      $151,298      $183,800     
    Total deposits 863,298  $5,171 2.38%  831,893  $3,877 1.85%  811,530  $1,379 0.67%
    Total funding(1) 915,121   5,770 2.50%  886,411   4,518 2.02%  882,547   2,131 0.96%

    (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.



     Year Ended
     December 31, 2023 December 31, 2022
     Average
    Outstanding
    Balance    		 Interest
    Earned/Paid    		 Yield/Rate Average
    Outstanding
    Balance    		 Interest
    Earned/Paid    		 Yield/Rate
    Interest-Earning Assets:           
    Loans receivable$870,227  $46,470   5.34% $783,372  $38,177   4.87%
    Interest-bearing cash 74,708   3,621   4.85%  110,344   1,235   1.12%
    Investments 13,661   518   3.79%  13,988   383   2.74%
    Total interest-earning assets$958,596  $50,609   5.28% $907,704  $39,795   4.38%
    Interest-Bearing Liabilities:           
    Savings and money market accounts$194,810  $2,783   1.43% $188,478  $211   0.11%
    Demand and NOW accounts 204,922   736   0.36%  295,919   690   0.23%
    Certificate accounts 280,238   10,617   3.79%  129,011   2,049   1.59%
    Subordinated notes 11,698   672   5.74%  11,653   672   5.77%
    Borrowings 43,977   1,951   4.44%  27,273   878   3.22%
    Total interest-bearing liabilities$735,645   16,759   2.28% $652,334   4,500   0.69%
    Net interest income/spread  $33,850   3.00%   $35,295   3.69%
    Net interest margin     3.53%      3.89%
                
    Ratio of interest-earning assets to interest-bearing liabilities 130%      139%    
    Noninterest-bearing deposits$154,448      $190,113     
    Total deposits 834,418  $14,136   1.69%  803,521  $2,950   0.37%
    Total funding(1) 890,093   16,759   1.88%  842,447   4,500   0.53%

    (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)

     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Real estate loans:         
    One-to-four family$279,448  $280,556  $273,720  $274,687  $274,638 
    Home equity 23,073   21,313   19,760   19,631   19,548 
    Commercial and multifamily 315,280   304,252   301,828   307,558   313,358 
    Construction and land 126,758   118,619   117,382   125,983   116,878 
    Total real estate loans 744,559   724,740   712,690   727,859   724,422 
    Consumer Loans:         
    Manufactured homes 36,193   34,652   31,619   27,904   26,953 
    Floating homes 75,108   73,716   70,596   73,579   74,443 
    Other consumer 19,612   18,710   17,915   17,378   17,923 
    Total consumer loans 130,913   127,078   120,130   118,861   119,319 
    Commercial business loans 20,688   25,033   23,939   25,192   23,815 
    Total loans 896,160   876,851   856,759   871,912   867,556 
    Less:         
    Premiums 829   850   884   946   973 
    Deferred fees, net (2,511)  (2,267)  (2,214)  (2,313)  (2,548)
    Allowance for credit losses - loans (8,760)  (8,438)  (8,217)  (8,532)  (7,599)
    Total loans held-for-portfolio, net$885,718  $866,996  $847,212  $862,013  $858,382 



    DEPOSITS
    (Dollars in thousands, unaudited)

     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Noninterest-bearing demand$126,727  $153,921  $158,488  $173,079  $173,196 
    Interest-bearing demand 168,345   185,441   208,571   235,836   254,982 
    Savings 69,461   76,729   79,349   83,991   95,641 
    Money market(1) 154,044   143,558   87,360   77,624   74,639 
    Certificates 307,962   301,226   288,485   271,117   210,305 
    Total deposits$826,539  $860,875  $822,253  $841,647  $808,763 

    (1) Includes $5.0 million of brokered deposits. 



    CREDIT QUALITY DATA
    (Dollars in thousands, unaudited)

     At or For the Quarter Ended
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
    Total nonperforming loans$3,556  $1,762  $1,511  $1,293  $2,958 
    OREO and other repossessed assets 575   575   575   575   659 
    Total nonperforming assets$4,131  $2,337  $2,086  $1,868  $3,617 
    Net charge-offs during the quarter$(15) $(3) $(73) $(72) $(15)
    (Release of) provision for credit losses during the quarter (27)  75   (331)  10   78 
    Allowance for credit losses - loans 8,760   8,438   8,217   8,532   7,599 
    Allowance for credit losses - loans to total loans 0.98%  0.96%  0.96%  0.98%  0.88%
    Allowance for credit losses - loans to total nonperforming loans 246.34%  478.89%  543.81%  659.86%  256.81%
    Nonperforming loans to total loans 0.40%  0.20%  0.18%  0.15%  0.34%
    Nonperforming assets to total assets 0.42%  0.23%  0.21%  0.19%  0.37%



    OTHER STATISTICS
    (Dollars in thousands, unaudited)

     At or For the Quarter Ended
     December 31,
    2023    		 September 30,
    2023    		 June 30,
    2023    		 March 31,
    2023    		 December 31,
    2022
              
    Total loans to total deposits 108.42%  101.86%  104.20%  103.60%  107.27%
    Noninterest-bearing deposits to total deposits 15.33%  17.88%  19.27%  20.56%  21.41%
              
    Average total assets for the quarter$1,033,985  $1,005,223  $992,822  $996,516  $996,042 
    Average total equity for the quarter$100,612  $100,927  $99,503  $99,028  $97,119 



    Contact

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


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