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].
Sound Financial Bancorp(SFBC) - 2024 Q4 - Annual Report