UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-35633 Sound Financial Bancorp, Inc. (Exact name of registrant as specified in its charter) | Maryland | 45-5188530 | | --- | -- ...

Sound Financial Bancorp, Inc. Q1 2025 Results Seattle, WA, April 29, 2025 — 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 ...

Core Viewpoint - Sound Financial Bancorp, Inc. reported a net income of $1.2 million for Q1 2025, a decrease from $1.9 million in Q4 2024, but an increase from $770 thousand in Q1 2024, alongside a cash dividend declaration of $0.19 per share [1][2][40] Financial Performance - Total assets increased by $75.6 million or 7.6% to $1.07 billion at March 31, 2025, compared to $993.6 million at December 31, 2024, but decreased by $17.5 million or 1.6% from $1.09 billion at March 31, 2024 [6] - Loans held-for-portfolio decreased by $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 by $11.7 million or 1.3% from $897.9 million at March 31, 2024 [6][33] - Total deposits increased by $72.5 million or 8.7% to $910.3 million at March 31, 2025, from $837.8 million at December 31, 2024, but decreased by $6.5 million or 0.7% from $916.9 million at March 31, 2024 [7] Income and Expenses - Net interest income decreased by $149 thousand or 1.8% to $8.1 million for Q1 2025, compared to $8.2 million for Q4 2024, but increased by $611 thousand or 8.2% from $7.5 million for Q1 2024 [9] - Total noninterest income decreased by $62 thousand or 5.3% to $1.1 million for Q1 2025, compared to Q4 2024, and was virtually unchanged compared to Q1 2024 [11][24] - Total noninterest expense increased by $856 thousand or 12.1% to $7.9 million for Q1 2025, compared to Q4 2024, and increased by $258 thousand or 3.4% compared to Q1 2024 [11][25] Credit Quality - Total nonperforming loans increased by $2.2 million or 28.9% to $9.7 million at March 31, 2025, from $7.5 million at December 31, 2024, and increased by $600 thousand or 6.6% from $9.1 million at March 31, 2024 [8] - The allowance for credit losses on loans to total loans outstanding was 0.95% at March 31, 2025, compared to 0.94% at December 31, 2024, and 0.96% at March 31, 2024 [10][35] Capital Management - Stockholders' equity totaled $104.4 million at March 31, 2025, an increase of $765 thousand or 0.7% from $103.7 million at December 31, 2024, and an increase of $3.4 million or 3.4% from $101.0 million at March 31, 2024 [40]

Loan and Credit Quality - Modified loans to troubled borrowers totaled $1.3 million at December 31, 2024, down from $1.7 million at December 31, 2023[94]. - Classified assets amounted to $27.4 million at December 31, 2024, representing 26.4% of equity capital and 2.8% of total assets[98]. - The allowance for credit losses (ACL) on loans was $8.5 million, or 0.94% of the total loan portfolio, compared to $8.8 million, or 0.98% at December 31, 2023[102]. - Nonaccrual loans increased to $7.5 million, or 0.83% of total loans outstanding, from $3.6 million, or 0.40% in the previous year[105]. - The ACL as a percentage of nonperforming loans decreased to 113.46% at December 31, 2024, from 246.34% at December 31, 2023[108]. - Net charge-offs were $100 thousand for the year ended December 31, 2024, compared to $163 thousand for the year ended December 31, 2023[108]. - Special mention assets totaled $18.7 million at December 31, 2024[97]. - The company maintains an allowance for credit losses on loans using the Current Expected Credit Loss (CECL) methodology, which reflects management's best estimate of lifetime expected credit losses[209]. Deposits and Funding - Total deposits increased by $11.3 million to $837.8 million at December 31, 2024, primarily due to a $52.0 million, or 33.8%, increase in money market accounts[122]. - Core deposits represented approximately 87.3% of total deposits at December 31, 2024, compared to 86.6% at December 31, 2023[119]. - Interest-bearing demand and savings accounts decreased by $26.2 million, or 15.6%, and $8.2 million, or 11.8%, respectively, from December 31, 2023, to December 31, 2024[122]. - Noninterest-bearing demand accounts increased by $6.0 million, or 4.8%, in 2024 compared to 2023[122]. - The company had $25.0 million of outstanding FHLB fixed-rate advances at December 31, 2024, with maturities ranging from January 2026 to January 2028[129]. - Approximately $167.3 million of the deposit portfolio was uninsured as of December 31, 2024[125]. - The company had no brokered deposits at December 31, 2024, compared to $5.0 million of brokered money market accounts at December 31, 2023[119]. - The total amount available under the FHLB agreement at December 31, 2024, was $172.3 million[129]. Regulatory and Compliance - The company is subject to extensive regulatory oversight from the FDIC and WDFI, which includes the ability to require higher loan loss reserves[140]. - The implementation of the Current Expected Credit Loss (CECL) standard may reduce the company's retained earnings and affect regulatory capital[156]. - The company must maintain specified levels of regulatory capital under FDIC and FRB regulations, with the CBLR framework providing a simplified measure of capital adequacy[152]. - The FDIC has increased initial base deposit insurance assessment rates by two basis points starting in 2023, which may impact the company's operating expenses[147]. - Sound Financial Bancorp is subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act, ensuring safe and sound operations[177]. - The Federal Reserve limits the payment of cash dividends by bank holding companies if net income is insufficient to cover both the cash dividend and a rate of earnings retention[185]. - Sound Community Bank is required to disclose its privacy policy and inform consumers of their rights to opt out of certain practices[165]. - Non-compliance with federal or state privacy and cybersecurity laws could lead to substantial regulatory fines and reputational harm[167]. Economic and Market Conditions - Economic conditions in the Puget Sound area significantly impact the bank's loan repayment capabilities and overall financial performance[200]. - The bank's loan portfolio includes higher-risk loans, such as commercial and multifamily real estate loans, which are sensitive to economic fluctuations[204]. - The COVID-19 pandemic has led to increased uncertainty in the commercial real estate market, affecting demand for office space[204]. - The bank's financial performance is influenced by external economic factors, including inflation and monetary policy changes[202]. Risk Management - The effectiveness of the company's risk management framework is critical, as ineffective management could lead to unexpected losses and materially affect financial results[254]. - The company faces ongoing challenges from an increasing prevalence of fraud and financial crimes, which have resulted in financial losses despite preventive measures[236]. - The company has not incurred substantial losses from cyber-attacks to date, but ongoing advancements in internet and mobile banking heighten exposure to cybersecurity risks[223]. - The reliance on external vendors for essential operations exposes the company to operational and information security risks, which could disrupt operations and impair customer service[229]. - The adoption of Artificial Intelligence (AI) introduces model risk and regulatory compliance concerns, particularly regarding transparency and explainability in decision-making processes[231]. Employee and Workforce - As of December 31, 2024, Sound Community Bank employed 108 full-time and 15 part-time employees, with a workforce composition of approximately 62% female[194][195]. - The average employee tenure at Sound Community Bank is 6.14 years, indicating strong employee engagement[195]. Financial Performance and Strategy - The company had $1.3 million in unrestricted cash as of December 31, 2024, to support dividend and debt payments[260]. - The company's investment strategy emphasizes safer investments, prioritizing risk management over yield[112]. - The company relies on competitive pricing policies, marketing, and client service to attract and retain deposits[119]. - The company did not recognize any credit losses on investment securities during the year ended December 31, 2024[116]. - The company faces risks related to mortgage banking income volatility, particularly in a rising interest rate environment, which may decrease loan originations and revenues[219]. - Increased prepayment rates can negatively impact the fair value of mortgage servicing rights and loan administration fee income[220].

Company Information - Sound Financial Bancorp, Inc. is a bank holding company and the parent company of Sound Community Bank [2] - The company is headquartered in Seattle, Washington, and operates full-service branches in several locations including Seattle, Tacoma, Mountlake Terrace, Sequim, Port Angeles, Port Ludlow, and University Place [2] - 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 [2] Upcoming Events - The annual meeting of shareholders is scheduled for May 27, 2025 [1] - The record date for shareholders entitled to vote at the annual meeting is March 31, 2025 [1] Contact Information - For additional information, Laurie Stewart serves as the President and CEO, and can be contacted at 206.436.1495 [3]

Financial Performance - Net income for Q4 2024 was $1.9 million, or $0.74 diluted earnings per share, compared to $1.2 million, or $0.45 diluted earnings per share in Q3 2024[1]. - Net income for 2024 was $4,640,000, a decrease of 37.9% compared to $7,439,000 in 2023[32]. - Basic earnings per share rose to $0.75 in Q4 2024, up from $0.47 in Q4 2023, marking a growth of 59.6%[36]. - The annualized return on average assets improved to 0.70% in Q4 2024, up from 0.46% in Q4 2023[34]. - The efficiency ratio improved to 75.25% in Q4 2024, down from 84.63% in Q4 2023, indicating better cost management[34]. Income and Expenses - Net interest income increased by $347 thousand, or 4.4%, to $8.2 million for Q4 2024, up from $7.9 million in Q3 2024[6]. - Noninterest income decreased by $75 thousand, or 6.1%, to $1.2 million for the quarter ended December 31, 2024, compared to the previous quarter, but increased by $94 thousand, or 8.8%, compared to the same quarter in 2023[13]. - Noninterest expense decreased by $621 thousand, or 8.1%, to $7.1 million for the quarter ended December 31, 2024, compared to the previous quarter, and decreased by $248 thousand, or 3.4%, from the same quarter in 2023[14]. - Total noninterest income for the quarter ended December 31, 2024, was $1.160 million, compared to $1.235 million for the quarter ended September 30, 2024[31]. Assets and Liabilities - Total assets decreased by $107.3 million, or 9.7%, to $993.6 million at December 31, 2024, from $1.10 billion at September 30, 2024[5]. - Total deposits decreased by $92.4 million, or 9.9%, to $837.8 million at December 31, 2024, from $930.2 million at September 30, 2024[5]. - Cash and cash equivalents decreased by $105.3 million, or 70.7%, to $43.6 million at December 31, 2024, compared to the previous quarter, primarily due to higher deposit withdrawals[17]. - Total loans held-for-portfolio were $900.2 million at December 31, 2024, compared to $901.7 million at September 30, 2024, and $894.5 million at December 31, 2023[19]. - Total interest-earning assets increased to $1,044,507 thousand with a net interest income of $8,220 thousand, resulting in a net interest margin of 3.13% for the three months ended December 31, 2024[39]. Credit Quality - Nonperforming loans decreased by $998 thousand, or 11.8%, to $7.5 million at December 31, 2024, from $8.5 million at September 30, 2024[5]. - The allowance for credit losses on loans to total loans outstanding was 0.94% at December 31, 2024, compared to 0.95% at September 30, 2024[5]. - Net loan charge-offs for the fourth quarter of 2024 totaled $13 thousand, compared to $14 thousand for the third quarter of 2024, and $15 thousand for the fourth quarter of 2023[21]. - Total nonperforming loans decreased to $7,491,000 from $9,053,000 year-over-year, representing a decline of 17.3%[46]. - Nonperforming loans to total loans ratio improved to 0.83% from 1.01% year-over-year[46]. Deposits and Funding - The loans-to-deposits ratio was 108% at December 31, 2024, compared to 97% at September 30, 2024[5]. - Noninterest-bearing deposits increased by $2.8 million, or 2.2%, to $132.5 million at December 31, 2024, compared to $129.7 million at September 30, 2024[24]. - Total deposits amounted to $926,734 thousand, with an average interest expense of $6,017 thousand, leading to a cost of total funding of 2.68%[39]. - FHLB advances totaled $25.0 million at December 31, 2024, down from $40.0 million at September 30, 2024[25].

Financial Performance - The company reported net income of $1.9 million for Q4 2024, an increase from $1.2 million in Q3 2024 and $1.2 million in Q4 2023, resulting in diluted earnings per share of $0.74 [1][11] - Net interest income increased by $347 thousand, or 4.4%, to $8.2 million for Q4 2024 compared to Q3 2024, and increased by $653 thousand, or 8.6%, from Q4 2023 [11][12] - Total noninterest income decreased by $75 thousand, or 6.1%, to $1.2 million for Q4 2024 compared to Q3 2024, but increased by $94 thousand, or 8.8%, compared to Q4 2023 [19] Balance Sheet and Capital Management - Total assets decreased by $107.3 million, or 9.7%, to $993.6 million at December 31, 2024, from $1.10 billion at September 30, 2024 [6][21] - Total deposits decreased by $92.4 million, or 9.9%, to $837.8 million at December 31, 2024, compared to $930.2 million at September 30, 2024 [6][30] - Stockholders' equity increased by $1.4 million, or 1.4%, to $103.7 million at December 31, 2024, from $102.2 million at September 30, 2024 [30] Loan and Credit Quality - Loans held-for-portfolio decreased by $1.6 million, or 0.2%, to $900.2 million at December 31, 2024, compared to $901.7 million at September 30, 2024 [24] - Nonperforming loans decreased by $998 thousand, or 11.8%, to $7.5 million at December 31, 2024, from $8.5 million at September 30, 2024 [8][25] - The allowance for credit losses on loans to total loans outstanding was 0.94% at December 31, 2024, compared to 0.95% at September 30, 2024 [26] Operational Efficiency - The company achieved a 15-basis-point increase in net interest margin (NIM) to 3.13% for Q4 2024, primarily due to reduced deposit costs [3][17] - Total noninterest expense decreased by $621 thousand, or 8.1%, to $7.1 million for Q4 2024 compared to Q3 2024 [20] - The company maintained capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at December 31, 2024 [10]

Financial Performance - Total interest income for the three months ended September 30, 2024, was $14,838,000, an increase of 17% compared to $12,686,000 for the same period in 2023[9]. - Net income for the three months ended September 30, 2024, was $1,154,000, slightly down from $1,169,000 in the same period of 2023[11]. - Noninterest income for the nine months ended September 30, 2024, totaled $3,494,000, compared to $3,940,000 for the same period in 2023, reflecting a decrease of 11.4%[9]. - Basic earnings per share for the three months ended September 30, 2024, remained at $0.45, consistent with the same period in 2023[9]. - Net income for Q3 2024 decreased by $15 thousand, or 1.3%, to $1.2 million, primarily due to a $295 thousand decrease in net interest income[137]. - Year-to-date (YTD) net income for 2024 decreased by $3.5 million, or 56.3%, to $2.7 million, attributed to a $3.5 million decrease in net interest income and a $446 thousand decrease in noninterest income[137]. Income and Expenses - Total noninterest expense for the three months ended September 30, 2024, was $7,679,000, a decrease of 0.4% from $7,710,000 in the same period of 2023[9]. - The provision for income taxes for the three months ended September 30, 2024, was $267,000, compared to $295,000 for the same period in 2023[9]. - Salaries and benefits increased by $321 thousand, or 7.7%, to $4.5 million for the three months ended September 30, 2024, compared to $4.1 million for the same period in 2023[148]. - Total noninterest income decreased by $446 thousand, or 11.3%, to $3.5 million for the nine months ended September 30, 2024, compared to $3.9 million for the same period in 2023[146]. Assets and Equity - Total stockholders' equity increased to $102,239,000 as of September 30, 2024, up from $100,654,000 at December 31, 2023[13]. - Cash and cash equivalents at the end of the period were $148,930,000, up from $101,890,000 at the end of the same period in 2022, an increase of approximately 46.1%[16]. - Total assets increased by $105.7 million, or 10.6%, to $1.10 billion at September 30, 2024, from $995.2 million at December 31, 2023[113]. - The company’s stockholders' equity was $102.2 million at September 30, 2024[110]. Loans and Credit Quality - Total loans held-for-portfolio increased to $903,485 thousand as of September 30, 2024, compared to $896,160 thousand at December 31, 2023, reflecting a growth of 0.37%[34]. - The allowance for credit losses on loans was $8,585 thousand at the end of the period, down from $8,760 thousand, indicating a reduction of approximately 1.99%[36]. - The provision for credit losses during the three months ended September 30, 2024, was $106 thousand, compared to a release of $98 thousand in the same period of 2023[36]. - As of September 30, 2024, there were no loans classified as doubtful or loss, indicating strong credit quality management[46]. - The company reported three collateral dependent mortgage loans in process of foreclosure, totaling $355 thousand, all related to deceased borrowers[35]. Deposits and Borrowings - The company reported a net increase in deposits of $103,658,000 for the nine months ended September 30, 2023, compared to $52,112,000 in the same period of 2022, reflecting a substantial growth in deposits[16]. - The company had $20.0 million available under an unsecured Fed Funds line of credit as of September 30, 2024, with no balance drawn on this line[82]. - The company had the ability to borrow $168.1 million in FHLB advances and $21.9 million through the Federal Reserve's discount window as of September 30, 2024[152]. Securities and Investments - The company reported unrealized losses of $307,000 on available-for-sale securities for the nine months ended September 30, 2024[11]. - The amortized cost of available-for-sale (AFS) securities was $9.2 million, with an estimated fair value of $8.032 million, reflecting gross unrealized losses of $1.193 million[24]. - The company did not own any debt securities classified as trading or any equity investment securities as of September 30, 2024[24]. - The estimated fair value of available-for-sale securities is $8,032,000 as of September 30, 2024[66]. Regulatory and Compliance - The company is evaluating the impact of the adoption of ASU 2023-07 on the footnotes to its consolidated financial statements, effective for fiscal years beginning after December 15, 2023[22]. - The company does not expect the adoption of ASU 2023-09 to have a material impact on the footnotes to its consolidated financial statements, effective for fiscal years beginning after December 15, 2024[23]. - The classification of assets and valuation allowances is subject to review by federal and state regulators, ensuring compliance with regulations[46]. Dividends - Cash dividends paid on common stock for the three months ended September 30, 2024, were $0.19 per share, totaling $487,000[13]. - Cash dividends paid were $0.57 per common share for the nine months ended September 30, 2024, compared to $0.55 per share for the same period in 2023, resulting in a dividend payout ratio of 53.66% versus 22.88%[151].

Financial Performance - Net income for Q3 2024 was $1.2 million, or $0.45 diluted earnings per share, a 45% increase from the prior quarter's net income of $795 thousand[1][2]. - Net income for the quarter ended September 30, 2024, was $1,154 thousand, compared to $795 thousand in the previous quarter[30]. - Net income for the nine months ended September 30, 2024, was $2,719 thousand, compared to $6,228 thousand for the same period in 2023, a decline of 56.4%[32]. - Basic earnings per share for the quarter ended September 30, 2024, was $0.45, up from $0.31 in the previous quarter[37]. Asset Growth - Total assets increased by $26.1 million, or 2.4%, to $1.10 billion compared to $1.07 billion at the end of Q2 2024, and increased by $70.8 million, or 6.9%, from $1.03 billion at the end of Q3 2023[3]. - Total assets as of September 30, 2024, reached $1,100,930 thousand, an increase from $1,030,176 thousand as of September 30, 2023, reflecting a growth of 6.8%[34]. - Average total assets for the quarter increased to $1,095,404 thousand from $1,070,579 thousand in the previous quarter, marking a growth of 2.4%[48]. Loan and Deposit Activity - Loans held-for-portfolio rose by $12.5 million, or 1.4%, to $901.7 million compared to $889.3 million at the end of Q2 2024, and increased by $26.3 million, or 3.0%, from $875.4 million at the end of Q3 2023[3]. - Total deposits increased by $23.4 million, or 2.6%, to $930.2 million compared to $906.8 million at the end of Q2 2024, and increased by $69.3 million, or 8.1%, from $860.9 million at the end of Q3 2023[3]. - Total deposits increased to $930,197 thousand as of September 30, 2024, from $860,875 thousand a year earlier, marking an increase of 8.0%[34]. - The loans-to-deposits ratio was 97% at the end of Q3 2024, compared to 98% at the end of Q2 2024 and 102% at the end of Q3 2023[3]. Interest Income and Expense - Net interest income increased by $425 thousand, or 5.7%, to $7.9 million for Q3 2024 compared to $7.4 million for Q2 2024, but decreased by $295 thousand, or 3.6%, from $8.2 million for Q3 2023[4]. - Interest income for the quarter ended September 30, 2024, was $14,838 thousand, up from $14,039 thousand in the previous quarter[30]. - Interest expense increased by $374 thousand, or 5.7%, to $7.0 million for Q3 2024, and increased by $2.4 million, or 54.2%, from $4.5 million for Q3 2023[8]. - The average cost of deposits was 2.74% for Q3 2024, up from 2.67% for Q2 2024 and 1.85% for Q3 2023[8]. Credit Quality - Non-performing loans decreased by $420 thousand, or 4.7%, to $8.5 million at the end of Q3 2024, but increased by $6.7 million, or 381.8%, from $1.8 million at the end of Q3 2023[3]. - The provision for credit losses for Q3 2024 was $8 thousand, compared to a release of $109 thousand in Q2 2024 and a provision of $75 thousand in Q3 2023, reflecting growth in the loan portfolio and higher loss rates due to economic conditions[10]. - Nonperforming loans to total loans ratio improved to 0.94% from 1.00% in the previous quarter, indicating a positive trend in credit quality[47]. - 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[18]. Noninterest Income and Expense - Noninterest income increased by $73 thousand, or 6.3%, to $1.2 million in Q3 2024 compared to Q2 2024, and increased by $154 thousand, or 14.2%, compared to Q3 2023, driven by fair value adjustments in mortgage servicing rights[11]. - Noninterest expense decreased by $58 thousand, or 0.7%, to $7.7 million in Q3 2024 compared to Q2 2024, primarily due to a $189 thousand decrease in salaries and benefits[12]. - Total noninterest income for the nine months ended September 30, 2024, was $3,494 thousand, down from $3,940 thousand, a decrease of 11.4%[32]. - Total noninterest expense was $7,679 thousand for the quarter ended September 30, 2024, slightly down from $7,737 thousand in the previous quarter[30]. Capital and Equity - The Bank maintained capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at the end of Q3 2024[3]. - Stockholders' equity rose to $102.2 million at September 30, 2024, an increase of $892 thousand, or 0.9%, from $101.3 million at June 30, 2024[24].

Core Insights - Laurie Stewart, President and CEO of Sound Community Bank, has been recognized as one of The Most Powerful Women to Watch in 2024 by American Banker [1][2] - The Most Powerful Women in Banking™ program celebrates exceptional leadership, business performance, and commitment to diversity, equity, and inclusion in financial services [2][3] - The honorees will be acknowledged at a gala event on October 24, 2024, in New York City [3] Company Overview - Sound Community Bank was established in 1953 and provides personal and business banking services in the greater Puget Sound region [5] - As of June 30, 2024, Sound Financial Bancorp, Inc., the parent company of Sound Community Bank, reported total assets of $1.1 billion [5] Leadership Achievements - Laurie Stewart has been with Sound Community Bank for 34 years, leading its transformation from a $38 million credit union to a $1 billion publicly traded commercial bank [4] - Stewart has held significant roles in various banking associations, including serving as Chairperson of the American Bankers Association Board of Directors, becoming only the third woman to do so in nearly 150 years [4] - She has also served on the Board of Directors for the Seattle Branch of the Federal Reserve Bank of San Francisco and is currently on the 12th District Head Office Board [4]