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SEATTLE, April 29, 2025 (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 March 31, 2025, or $0.45 diluted earnings per share, as compared to net income of $1.9 million, or $0.74 diluted earnings per share, for the quarter ended December 31, 2024, and $770 thousand, or $0.30 diluted earnings per share, for the quarter ended March 31, 2024. The Company also announced today that its Board of Directors declared a cash dividend on the Company's common stock of $0.19 per share, payable on May 23, 2025 to stockholders of record as of the close of business on May 9, 2025.
Comments from the President / Chief Executive Officer and Chief Financial Officer
"Despite ongoing economic uncertainty, we remained focused on lowering our cost of deposits and originating new loans at higher rates, which contributed to a 12-basis point improvement in our net interest margin compared to the prior quarter. This reflects the team's strong efforts to build full banking relationships by addressing both the lending and deposit needs of our consumer and business clients,” remarked Laurie Stewart, President and Chief Executive Officer.
"We continue to prioritize expense management, even though expenses increased compared to the previous quarter. The quarter-over-quarter increase was largely due to typical year-end accrual adjustments and annual expenses that are recognized in the first quarter. However, when compared to the first quarter of 2024, we have seen reductions in combined salaries and benefits, and operational expenses, thanks to our investments in technology. We also expect the year-over-year growth in data processing costs to moderate as the year progresses," explained Wes Ochs, Executive Vice President and Chief Financial Officer.
Mr. Ochs continued, "While we did see an increase in nonperforming loans this quarter mainly due to two specific credits, one of which has since been repaid, we have not observed broader signs of stress in the loan portfolio. Importantly, we also successfully exited a $17 million loan that had been rated as special mention, which contributed to the decline in overall loan balances. Notably, 83% of our nonperforming loans are tied to just four loans, each with its own unique circumstances. These loans are well-secured, and we are actively working toward resolutions in the near-term."
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| Q1 2025 Financial Performance | |||||
| Total assets increased $75.6 million or 7.6% to $1.07 billion at March 31, 2025, from $993.6 million at December 31, 2024, and decreased $17.5 million or 1.6% from $1.09 billion at March 31, 2024. | Net interest income decreased $149 thousand or 1.8% to $8.1 million for the quarter ended March 31, 2025, from $8.2 million for the quarter ended December 31, 2024, and increased $611 thousand or 8.2% from $7.5 million for the quarter ended March 31, 2024. | ||||
| Loans held-for-portfolio decreased $13.9 million or 1.5% to $886.2 million at March 31, 2025, compared to $900.2 million at December 31, 2024, and decreased $11.7 million or 1.3% from $897.9 million at March 31, 2024. | Net interest margin ("NIM"), annualized, was 3.25% for the quarter ended March 31, 2025, compared to 3.13% for the quarter ended December 31, 2024 and 2.95% for the quarter ended March 31, 2024. | ||||
| Total deposits increased $72.5 million or 8.7% to $910.3 million at March 31, 2025, from $837.8 million at December 31, 2024, and decreased $6.5 million or 0.7% from $916.9 million at March 31, 2024. Noninterest-bearing deposits decreased $5.8 million or 4.4% to $126.7 million at March 31, 2025 compared to $132.5 million at December 31, 2024, and decreased $2.0 million or 1.5% compared to $128.7 million at March 31, 2024.
| A $203 thousand release of provision for credit losses was recorded for the quarter ended March 31, 2025, compared to a $14 thousand provision and a $33 thousand release of provision for credit losses for the quarters ended December 31, 2024 and March 31, 2024, respectively. At March 31, 2025, the allowance for credit losses on loans to total loans outstanding was 0.95%, compared to 0.94% at December 31, 2024 and 0.96% at March 31, 2024. | ||||
| The loans-to-deposits ratio was 98% at March 31, 2025, compared to 108% at December 31, 2024 and 98% at March 31, 2024. | Total noninterest income decreased $62 thousand or 5.3% to $1.1 million for the quarter ended March 31, 2025, compared to the quarter ended December 31, 2024, and was virtually unchanged compared to the quarter ended March 31, 2024. | ||||
| Total nonperforming loans increased $2.2 million or 28.9% to $9.7 million at March 31, 2025, from $7.5 million at December 31, 2024, and increased $600 thousand or 6.6% from $9.1 million at March 31, 2024. Nonperforming loans to total loans was 1.09% and the allowance for credit losses on loans to total nonperforming loans was 86.95% at March 31, 2025. | Total noninterest expense increased $856 thousand or 12.1% to $7.9 million for the quarter ended March 31, 2025, compared to the quarter ended December 31, 2024, and increased $258 thousand or 3.4% compared to the quarter ended March 31, 2024. | ||||
| The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at March 31, 2025. | |||||
Operating Results
Net Interest Income after (Release of) Provision for Credit Losses
| For the Quarter Ended | Q1 2025 vs. Q4 2024 | Q1 2025 vs. Q1 2024 | |||||||||||||||||||||||
| March 31, 2025 | December 31,
2024 | March 31,
2024 | Amount ($) | Percentage (%) | Amount ($) | Percentage (%) | |||||||||||||||||||
| (Dollars in thousands, unaudited) | |||||||||||||||||||||||||
| Interest income | $ | 13,706 | $ | 14,736 | $ | 13,760 | $ | (1,030 | ) | (7.0) | % | $ | (54 | ) | (0.4) | % | |||||||||
| Interest expense | 5,635 | 6,516 | 6,300 | (881 | ) | (13.5) | % | (665 | ) | (10.6) | % | ||||||||||||||
| Net interest income | 8,071 | 8,220 | 7,460 | (149 | ) | (1.8) | % | 611 | 8.2 | % | |||||||||||||||
| (Release of) provision for credit losses | (203 | ) | 14 | (33 | ) | (217 | ) | (1550.0) | % | (170 | ) | 515.2 | % | ||||||||||||
| Net interest income after (release of) provision for credit losses | 8,274 | 8,206 | 7,493 | 68 | 0.8 | % | 781 | 10.4 | % | ||||||||||||||||
Q1 2025 vs Q4 2024
The decrease in interest income from the prior quarter was primarily due to a lower average balance of loans, investments and interest-earning cash, an eight basis point decline in the average yield on loans, a 41 basis point decline in the average yield on interest-bearing cash, and a 57 basis point decline in the average yield on investments.
Interest income on loans decreased $482 thousand, or 3.7%, to $12.6 million for the quarter ended March 31, 2025, compared to $13.1 million for the quarter ended December 31, 2024. The average balance of total loans was $896.8 million for the quarter ended March 31, 2025, down from $900.8 million for the quarter ended December 31, 2024. The decrease in the average balance of total loans was primarily due to declines in construction and land loans and one-to-four family loans, offset by growth in commercial and multifamily loans and home equity loans. The average balances for manufactured home loans, floating home loans, commercial business loans, and other consumer loans remained relatively flat from the fourth quarter of 2024. The average yield on total loans was 5.69% for the quarter ended March 31, 2025, down from 5.77% for the quarter ended December 31, 2024. The decline was primarily due to interest that was reversed on nonaccrual loans during the first quarter, as well as interest that had been recognized on those loans in the fourth quarter. This was partly offset by new loans being made at higher interest rates and some variable-rate loans adjusting upward. Interest income on investments was $108 thousand for the quarter ended March 31, 2025, compared to $132 thousand for the quarter ended December 31, 2024. Interest income on interest-bearing cash decreased $524 thousand to $1.0 million for the quarter ended March 31, 2025, compared to $1.5 million for the quarter ended December 31, 2024. This decrease was a result of both lower average yields and average balances during the quarter.
The decrease in interest expense during the current quarter from the prior quarter was primarily the result of lower average balances and rates paid on all categories of interest-bearing deposits. The average cost of deposits was 2.37% for the quarter ended March 31, 2025, down from 2.58% for the quarter ended December 31, 2024 as higher costing deposits repriced lower due to market interest rate cuts beginning in September 2024. The average cost of FHLB advances was 4.25% for the quarter ended March 31, 2025, down from 4.31% for the quarter ended December 31, 2024.
A release of provision for credit losses of $203 thousand was recorded for the quarter ended March 31, 2025, consisting of a release of provision for credit losses on loans of $85 thousand and a release of provision for credit losses on unfunded loan commitments of $118 thousand. This compared to a provision for credit losses of $14 thousand for the quarter ended December 31, 2024, consisting of a release of provision for credit losses on loans of $73 thousand and a provision for credit losses on unfunded loan commitments of $87 thousand. The decrease in the provision for credit losses for the quarter ended March 31, 2025 compared to the quarter ended December 31, 2024 resulted primarily from a smaller loan portfolio and a reduced balance of unfunded commitments, partially offset by an additional qualitative adjustment applied to certain loan segments, specifically consumer and construction loans, reflecting increased uncertainty in market conditions tied to the impact of tariffs and other external factors affecting our clients. Expected credit loss estimates consider various factors, including market conditions, borrower-specific information, projected delinquencies, and anticipated effects of economic trends on borrowers' ability to repay.
Q1 2025 vs Q1 2024
Interest income on loans increased $355 thousand, or 2.9%, to $12.6 million for the quarter ended March 31, 2025, compared to $12.2 million for the quarter ended March 31, 2024. The average balance of total loans was $896.8 million for the quarter ended March 31, 2025, up from $895.4 million for the quarter ended March 31, 2024. The average yield on total loans was 5.69% for the quarter ended March 31, 2025, up from 5.49% for the quarter ended March 31, 2024. The increase in the average loan yield during the current quarter, compared to the same quarter in 2024, 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 first quarter of 2024. Interest income on investments was $108 thousand for the quarter ended March 31, 2025, compared to $111 thousand for the quarter ended March 31, 2024. Interest income on interest-bearing cash decreased $406 thousand to $1.0 million for the quarter ended March 31, 2025, compared to $1.4 million for the quarter ended March 31, 2024. The decrease was a result of both a lower average yield and average balance.
The decrease in interest expense during the current quarter from the same quarter a year ago was primarily the result of a $18.9 million decrease in the average balance of interest-bearing demand and NOW accounts, a $25.5 million decrease in the average balance of certificate accounts, and a $15.0 million decrease in the average balance of FHLB advances, as well as lower average rates paid on all categories of interest-bearing deposits; resulting from lower market interest rates generally. These average-balance decreases were partially offset by a $51.0 million increase in the average balance of savings and money market accounts. The average cost of deposits was 2.37% for the quarter ended March 31, 2025, down from 2.57% for the quarter ended March 31, 2024. The average cost of FHLB advances was 4.25% for the quarter ended March 31, 2025, down from 4.31% for the quarter ended March 31, 2024.
A release of provision for credit losses of $203 thousand was recorded for the quarter ended March 31, 2025, consisting of a release of provision for credit losses on loans of $85 thousand and a release of provision for credit losses on unfunded loan commitments of $118 thousand. This compared to a release of provision for credit losses of $33 thousand for the quarter ended March 31, 2024, consisting of a release of provision for credit losses on loans of $106 thousand and a provision for credit losses on unfunded loan commitments of $73 thousand. The larger release recorded in the current quarter primarily reflected the factors discussed above.
Noninterest Income
| For the Quarter Ended | Q1 2025 vs. Q4 2024 | Q1 2025 vs. Q1 2024 | |||||||||||||||||||||||
| March 31, 2025 | December 31, 2024 | March 31, 2024 | Amount ($) | Percentage (%) | Amount ($) | Percentage (%) | |||||||||||||||||||
| (Dollars in thousands, unaudited) | |||||||||||||||||||||||||
| Service charges and fee income | $ | 684 | $ | 619 | $ | 612 | $ | 65 | 10.5 | % | $ | 72 | 11.8 | % | |||||||||||
| Earnings on bank-owned life insurance ("BOLI”) | 195 | 127 | 177 | 68 | 53.5 | % | 18 | 10.2 | % | ||||||||||||||||
| Mortgage servicing income | 269 | 277 | 282 | (8 | ) | (2.9) | % | (13 | ) | (4.6) | % | ||||||||||||||
| Fair value adjustment on mortgage servicing rights | (99 | ) | 77 | (65 | ) | (176 | ) | (228.6) | % | (34 | ) | 52.3 | % | ||||||||||||
| Net gain on sale of loans | 49 | 53 | 90 | (4 | ) | (7.5) | % | (41 | ) | (45.6) | % | ||||||||||||||
| Other income | - | 7 | - | (7 | ) | (100.0) | % | - | 100.0 | % | |||||||||||||||
| Total noninterest income | $ | 1,098 | $ | 1,160 | $ | 1,096 | $ | (62 | ) | (5.3) | % | $ | 2 | 0.2 | % | ||||||||||
Q1 2025 vs Q4 2024
The decrease in noninterest income during the current quarter compared to the quarter ended December 31, 2024 was primarily related to
- a $176 thousand downward adjustment in fair value of mortgage servicing rights due to a smaller servicing portfolio, partially offset by :
- an increase of $68 thousand in earnings from BOLI primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in the first quarter, offset by fluctuations in financial markets which decreased the values of policies; and
- a $65 thousand increase in service charges and fee income due to a volume incentive paid by Mastercard in the first quarter of 2025 and higher interchange income.
Loans sold during the quarter ended March 31, 2025, totaled $2.0 million, compared to $3.5 million and $4.2 million of loans sold during the quarters ended December 31, 2024 and March 31, 2024, respectively.
Q1 2025 vs Q1 2024
The increase in noninterest income during the current quarter compared to the quarter ended March 31, 2024 was primarily due to
- a $72 thousand increase in service charges and fee income primarily due to the reasons noted above, and
- an $18 thousand increase in earnings from BOLI primarily due to the strategic decision to surrender and exchange existing policies into higher yielding policies in the first quarter, offset by fluctuations in financial markets, which reduced the values of policies. The increases in service charges and fee income and in earnings from BOLI were partially offset by
- a $13 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than originations replace repayments;
- a $34 thousand decrease in the fair value adjustment on mortgage servicing rights due t
