Sound Financial Bancorp(SFBC) - 2025 Q2 - Quarterly Results

Introduction & Executive Summary Q2 2025 Financial Highlights Sound Financial Bancorp, Inc. reported a significant increase in net income and diluted EPS for Q2 2025 compared to the previous quarter and prior year. The Board declared a cash dividend of $0.19 per share | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :-------------------- | :------ | :------ | :------ | | Net Income | $2.1 million | $1.2 million | $795 thousand | | Diluted EPS | $0.79 | $0.45 | $0.31 | - The Board of Directors declared a cash dividend of $0.19 per share, payable on August 25, 2025[1] Management Commentary Management highlighted a 2% increase in the loan portfolio, improved credit quality, and a 5 basis point reduction in the cost of funds. Strategic focus remains on maintaining strong credit quality, improving net interest margin, controlling expenses, and realizing benefits from prior technology investments - The Company increased its loans held for portfolio by 2% in the quarter, improved credit quality, and reduced its cost of funds by 5 basis points, emphasizing money market products[2] - Teams remain focused on maintaining strong credit quality, improving net interest margin, and controlling expenses, resolving three of the four largest nonaccrual loans during the quarter[3] - Net interest income continues to improve by replacing lower yielding loans and growing the portfolio, with expected continued decline in funding costs and further efficiencies from technology investments[4] Q2 2025 Financial Performance Summary Key financial metrics for Q2 2025 show significant improvements in net interest income and net interest margin, alongside a decrease in total assets and deposits, and a substantial reduction in nonperforming loans Q2 2025 Key Financial Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------------------------ | :------ | :------ | :------ | | Net interest income | $9.3 million | $8.1 million | $7.4 million | | Total assets | $1.06 billion | $1.07 billion | $1.07 billion | | Loans held-for-portfolio | $904.3 million | $886.2 million | $889.3 million | | Total deposits | $899.5 million | $910.3 million | $906.8 million | | Noninterest-bearing deposits | $124.2 million | $126.7 million | $124.9 million | | Loans-to-deposits ratio | 101% | 98% | 98% | | Total nonperforming loans | $3.4 million | $9.7 million | $8.9 million | | Nonperforming loans to total loans | 0.37% | - | - | | Allowance for credit losses to NPLs | 253.59% | - | - | | Net interest margin (NIM), annualized | 3.67% | 3.25% | 2.92% | | Provision for credit losses | $170 thousand | ($203 thousand) | ($109 thousand) | | Total noninterest income | $1.1 million | $1.1 million | $1.2 million | | Total noninterest expense | $7.7 million | $7.9 million | $7.7 million | Operating Results Net Interest Income after Provision for Credit Losses (Table) The table provides a comparative overview of interest income, interest expense, net interest income, and provision for credit losses across Q2 2025, Q1 2025, and Q2 2024, highlighting significant quarter-over-quarter and year-over-year changes Operating Results (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | Q2 2025 vs. Q1 2025 Amount ($) | Q2 2025 vs. Q1 2025 Percentage (%) | Q2 2025 vs. Q2 2024 Amount ($) | Q2 2025 vs. Q2 2024 Percentage (%) | | :-------------------------------------------------- | :------------ | :------------- | :------------ | :----------------------------- | :--------------------------------- | :----------------------------- | :--------------------------------- | | Interest income | $14,915 | $13,706 | $14,039 | $1,209 | 8.8% | $876 | 6.2% | | Interest expense | $5,660 | $5,635 | $6,591 | $25 | 0.4% | ($931) | (14.1)% | | Net interest income | $9,255 | $8,071 | $7,448 | $1,184 | 14.7% | $1,807 | 24.3% | | Provision for (release of) credit losses | $170 | ($203) | ($109) | $373 | (183.7)% | $279 | (256.0)% | | Net interest income after provision for credit losses | $9,085 | $8,274 | $7,557 | $811 | 9.8% | $1,528 | 20.2% | Q2 2025 vs Q1 2025 Analysis Interest income increased by 8.8% QoQ, primarily driven by higher average balances of interest-earning cash, increased average yields on loans and investments, and loan payoffs. Interest expense saw a slight increase, while a provision for credit losses was recorded due to loan portfolio growth and qualitative adjustments - Interest income increased $1.2 million, or 8.8%, to $14.9 million, primarily due to a higher average balance of interest-earning cash, a 45 basis point increase in the average yield on loans, and a 45 basis point increase in the average yield on investments[8] - Interest income on loans increased $1.1 million, or 8.8%, to $13.7 million, with the average yield on total loans rising to 6.14% from 5.69%, driven by nonaccrual loan payoffs and new originations at higher rates[9] - A provision for credit losses of $170 thousand was recorded, compared to a release of $203 thousand in the prior quarter, mainly due to a larger loan portfolio, increased unfunded commitments, and additional qualitative adjustments for certain loan segments[12] Q2 2025 vs Q2 2024 Analysis Interest income on loans increased by 11.2% YoY, with the average loan yield rising to 6.14%. Interest expense decreased significantly due to lower average balances and rates on interest-bearing deposits and FHLB advances. A provision for credit losses was recorded in Q2 2025 compared to a release in Q2 2024 - Interest income on loans increased $1.4 million, or 11.2%, to $13.7 million, with the average yield on total loans rising to 6.14% from 5.56%, primarily due to nonaccrual loan payoffs, new originations at higher rates, and upward repricing on variable-rate loans[13] - Interest expense decreased primarily due to lower average balances of interest-bearing demand, NOW, certificate accounts, and FHLB advances, as well as lower average rates paid on all categories of interest-bearing deposits[15] - A provision for credit losses of $170 thousand was recorded, compared to a release of $109 thousand in the prior year's quarter, reflecting factors such as loan portfolio growth and qualitative adjustments[16] Noninterest Income Noninterest Income Table The table details the components of noninterest income for Q2 2025, Q1 2025, and Q2 2024, showing changes in service charges, BOLI earnings, mortgage servicing income, and other categories Noninterest Income (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | Q2 2025 vs. Q1 2025 Amount ($) | Q2 2025 vs. Q1 2025 Percentage (%) | Q2 2025 vs. Q2 2024 Amount ($) | Q2 2025 vs. Q2 2024 Percentage (%) | | :------------------------------------ | :------------ | :------------- | :------------ | :----------------------------- | :--------------------------------- | :----------------------------- | :--------------------------------- | | Service charges and fee income | $664 | $684 | $761 | ($20) | (2.9)% | ($97) | (12.7)% | | Earnings on bank-owned life insurance | $229 | $195 | $134 | $34 | 17.4% | $95 | 70.9% | | Mortgage servicing income | $263 | $269 | $279 | ($6) | (2.2)% | ($16) | (5.7)% | | Fair value adjustment on MSR | ($80) | ($99) | ($116) | $19 | (19.2)% | $36 | (31.0)% | | Net gain on sale of loans | $44 | $49 | $74 | ($5) | (10.2)% | ($30) | (40.5)% | | Other income | — | — | $30 | — | —% | ($30) | (100.0)% | | Total noninterest income | $1,120 | $1,098 | $1,162 | $22 | 2.0% | ($42) | (3.6)% | Q2 2025 vs Q1 2025 Analysis Total noninterest income increased slightly QoQ, driven by higher earnings from BOLI and a lower fair value adjustment on mortgage servicing rights. This was partially offset by a decrease in service charges and fee income and a decline in net gain on loan sales - The increase in noninterest income was primarily related to a $34 thousand increase in earnings from BOLI due to market fluctuations and a $19 thousand lower adjustment for the fair value of mortgage servicing rights[18] - These increases were partially offset by a $20 thousand decrease in service charges and fee income due to the absence of a Mastercard volume incentive received in the prior quarter[18] - Net gain on sale of loans declined by $5 thousand, reflecting lower pricing margins on loans sold, despite an increase in loan sale volume[19] Q2 2025 vs Q2 2024 Analysis Total noninterest income decreased YoY, mainly due to lower service charges, mortgage servicing income, net gain on loan sales, and other income. These decreases were partially offset by a significant increase in BOLI earnings and an improvement in the fair value adjustment of mortgage servicing rights - The decrease in noninterest income was primarily due to a $97 thousand decrease in service charges and fee income, a $16 thousand decrease in mortgage servicing income, a $30 thousand decrease in net gain on sale of loans, and a $30 thousand decrease in other income[24] - These decreases were partially offset by a $95 thousand increase in earnings from BOLI, primarily due to a strategic decision to exchange existing policies into higher yielding ones, and a $36 thousand improvement in the adjustment for the fair value of mortgage servicing rights[24] Noninterest Expense Noninterest Expense Table The table presents a comparative breakdown of noninterest expenses for Q2 2025, Q1 2025, and Q2 2024, showing changes across categories like salaries, operations, and data processing Noninterest Expense (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | Q2 2025 vs. Q1 2025 Amount ($) | Q2 2025 vs. Q1 2025 Percentage (%) | Q2 2025 vs. Q2 2024 Amount ($) | Q2 2025 vs. Q2 2024 Percentage (%) | | :------------------------------------ | :------------ | :------------- | :------------ | :----------------------------- | :--------------------------------- | :----------------------------- | :--------------------------------- | | Salaries and benefits | $4,321 | $4,595 | $4,658 | ($274) | (6.0)% | ($337) | (7.2)% | | Operations | $1,443 | $1,365 | $1,569 | $78 | 5.7% | ($126) | (8.0)% | | Regulatory assessments | $222 | $221 | $220 | $1 | 0.5% | $2 | 0.9% | | Occupancy | $416 | $437 | $397 | ($21) | (4.8)% | $19 | 4.8% | | Data processing | $1,254 | $1,293 | $910 | ($39) | (3.0)% | $344 | 37.8% | | Net loss (gain) on OREO and repossessed assets | $9 | $3 | ($17) | $6 | 200.0% | $26 | (152.9)% | | Total noninterest expense | $7,665 | $7,914 | $7,737 | ($249) | (3.1)% | ($72) | (0.9)% | Q2 2025 vs Q1 2025 Analysis Total noninterest expense decreased QoQ, primarily driven by lower salaries and benefits due to annual deferred compensation timing and higher deferred salaries, as well as decreases in occupancy and data processing costs. These reductions were partially offset by increased operations expense and OREO-related expenses - The decrease in noninterest expense was primarily a result of a $274 thousand decrease in salaries and benefits, a $21 thousand decrease in occupancy, and a $39 thousand decrease in data processing costs[25] - These decreases were partially offset by a $78 thousand increase in operations expense due to higher deposit product costs and loan fees, and a $6 thousand increase in expenses related to OREO and repossessed assets due to a new property[23][26] Q2 2025 vs Q2 2024 Analysis Total noninterest expense decreased YoY, mainly due to lower salaries and benefits and operations expense, reflecting cost-saving initiatives. This was partially offset by significant increases in data processing expenses due to project implementations and new software, as well as higher occupancy and OREO-related expenses - The decrease in noninterest expense was primarily a result of a $337 thousand decrease in salaries and benefits and a $126 thousand decrease in operations expense due to cost saving initiatives and process improvements[32] - These decreases were partially offset by a $344 thousand increase in data processing expenses due to project implementations and new software technology, a $19 thousand increase in occupancy expense, and a $26 thousand increase in OREO-related expenses[32] Balance Sheet Review, Capital Management and Credit Quality Assets Overview Total assets decreased slightly QoQ and YoY, primarily due to lower cash and cash equivalents. Loans held-for-portfolio, however, increased due to new originations across most loan segments - Total assets decreased $10.9 million or 1.0% to $1.06 billion at June 30, 2025, from $1.07 billion at March 31, 2025, primarily due to lower cash and cash equivalents[27] - Cash and cash equivalents decreased $29.0 million, or 22.0%, to $102.5 million at June 30, 2025, primarily due to lower deposit balances and an increase in loans held-for-portfolio[28] - Loans held-for-portfolio increased $18.1 million or 2.0% to $904.3 million at June 30, 2025, primarily due to new loan originations across most segments, excluding other consumer loans[30] Nonperforming Assets (NPAs) Nonperforming assets (NPAs) significantly decreased by 62.2% QoQ and 59.4% YoY, primarily due to substantial loan payoffs, including large commercial real estate and floating home loans. The ratio of NPAs to total assets improved to 0.35% - Nonperforming assets (NPAs) decreased $6.0 million, or 62.2%, to $3.7 million at June 30, 2025, from $9.7 million at March 31, 2025, primarily due to payoffs totaling $6.9 million[31] - NPAs to total assets improved to 0.35% at June 30, 2025, compared to 0.91% at March 31, 2025 and 0.84% at June 30, 2024[32] Nonperforming Assets Summary (Dollars in thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :------------ | | Total nonperforming loans | $3,366 | $9,653 | $8,909 | | OREO and Other Repossessed Assets | $300 | $41 | $115 | | Total NPAs | $3,666 | $9,694 | $9,024 | Allowance for Credit Losses The allowance for credit losses on loans to total loans outstanding remained stable at 0.94%. The allowance for credit losses on loans to total nonperforming loans significantly increased to 253.59%, indicating robust coverage for potential losses - The allowance for credit losses on loans to total loans outstanding was 0.94% at June 30, 2025, compared to 0.95% at March 31, 2025 and 0.96% at June 30, 2024[32] - Net loan charge-offs were $21 thousand for both Q2 and Q1 2025, compared to $17 thousand for Q2 2024[33] Allowance for Credit Losses Summary (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------------------- | :------------ | :------------- | :------------ | | Allowance for Credit Losses on Loans (End of Period) | $8,536 | $8,393 | $8,493 | | Provision for (release of) credit losses on loans | $164 | ($85) | ($88) | | Net charge-offs during the period | ($21) | ($21) | ($17) | | Allowance for Credit Losses on Unfunded Loan Commitments (End of Period) | $122 | $116 | $245 | | Allowance for credit losses on loans to total loans | 0.94% | 0.95% | 0.96% | | Allowance for credit losses on loans to total nonperforming loans | 253.59% | 86.95% | 95.33% | Deposits Total deposits decreased by 1.2% QoQ and 0.8% YoY, primarily due to normal daily fluctuations in customer account balances. Noninterest-bearing deposits also saw a slight decrease - Total deposits decreased $10.9 million, or 1.2%, to $899.5 million at June 30, 2025, from $910.3 million at March 31, 2025, primarily due to normal daily fluctuations[35] - Noninterest-bearing deposits decreased $2.5 million, or 2.0%, to $124.2 million at June 30, 2025, representing 13.7% of total deposits[35] Borrowings & Subordinated Notes FHLB advances remained stable QoQ at $25.0 million but decreased YoY from $40.0 million, primarily used to support loan growth and maintain liquidity. Subordinated notes remained consistent at $11.8 million - FHLB advances totaled $25.0 million at June 30, 2025 and March 31, 2025, down from $40.0 million at June 30, 2024, primarily used to support organic loan growth and maintain liquidity[36] - Subordinated notes, net, totaled $11.8 million at both June 30, 2025 and March 31, 2025, and $11.7 million at June 30, 2024[36] Stockholders' Equity Stockholders' equity increased by 1.5% QoQ and 4.6% YoY, driven primarily by net income earned during the quarter and share-based compensation, partially offset by an increase in accumulated other comprehensive loss and cash dividends - Stockholders' equity totaled $106.0 million at June 30, 2025, an increase of $1.6 million, or 1.5%, from March 31, 2025, and an increase of $4.7 million, or 4.6%, from June 30, 2024[37] - The increase in stockholders' equity was primarily the result of $2.1 million of net income and $75 thousand in share-based compensation, partially offset by a $67 thousand increase in accumulated other comprehensive loss and $487 thousand in cash dividends[37] Company Information Company Overview Sound Financial Bancorp, Inc. is the holding company for Sound Community Bank, headquartered in Seattle, Washington, with full-service branches in several locations and a loan production office. The bank is a Fannie Mae Approved Lender and Seller/Servicer - Sound Financial Bancorp, Inc. is the parent company of Sound Community Bank, headquartered in Seattle, Washington, with full-service branches in Seattle, Tacoma, Mountlake Terrace, Sequim, Port Angeles, Port Ludlow and University Place[38] - 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[38] Forward-Looking Statements Disclaimer Disclaimer Details This section provides a disclaimer regarding forward-looking statements, outlining that such statements are based on assumptions and expectations, subject to risks and uncertainties, and may differ materially from actual results. It lists various factors that could cause actual results to differ, including economic conditions, interest rate changes, regulatory shifts, and technological advancements. The Company disclaims any obligation to revise these statements - Forward-looking statements are based on underlying assumptions and expectations, subject to risks, uncertainties, and unknown factors, and may include projections of future financial performance[39] - Factors that could cause actual results to differ materially include adverse impacts to economic conditions, changes in interest rate levels, the impact of inflation, bank failures, changes in consumer habits, risks of lending activities, and regulatory changes[40] - 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[41] Consolidated Financial Statements Consolidated Income Statements (Six Months Ended) The consolidated income statements for the six months ended June 30, 2025, show an increase in net interest income and net income compared to the same period in 2024, despite a slight decrease in total noninterest income Consolidated Income Statements (Dollars in thousands, unaudited) | Metric | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------------- | :------------------------------------- | | Interest income | $28,622 | $27,799 | | Interest expense | $11,295 | $12,891 | | Net interest income | $17,327 | $14,908 | | Release of provision for credit losses | ($33) | ($142) | | Net interest income after release of provision for credit losses | $17,360 | $15,050 | | Total noninterest income | $2,216 | $2,258 | | Total noninterest expense | $15,578 | $15,394 | | Income before provision for income taxes | $3,998 | $1,914 | | Provision for income taxes | $779 | $350 | | Net income | $3,219 | $1,564 | Consolidated Income Statements (Quarter Ended) The consolidated income statements for the quarter ended June 30, 2025, demonstrate strong growth in net interest income and net income compared to previous quarters, despite a provision for credit losses Consolidated Income Statements (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Interest income | $14,915 | $13,706 | $14,736 | $14,838 | $14,039 | | Interest expense | $5,660 | $5,635 | $6,516 | $6,965 | $6,591 | | Net interest income | $9,255 | $8,071 | $8,220 | $7,873 | $7,448 | | Provision for (release of) provision for credit losses | $170 | ($203) | $14 | $8 | ($109) | | Net interest income after provision for credit losses | $9,085 | $8,274 | $8,206 | $7,865 | $7,557 | | Total noninterest income | $1,120 | $1,098 | $1,160 | $1,235 | $1,162 | | Total noninterest expense | $7,665 | $7,914 | $7,058 | $7,679 | $7,737 | | Income before provision for income taxes | $2,540 | $1,458 | $2,308 | $1,421 | $982 | | Provision for income taxes | $488 | $291 | $389 | $267 | $187 | | Net income | $2,052 | $1,167 | $1,919 | $1,154 | $795 | Consolidated Balance Sheets The consolidated balance sheets at June 30, 2025, show a slight decrease in total assets and liabilities compared to the prior quarter, while stockholders' equity increased. Loans held-for-portfolio increased, offset by a decrease in cash and deposits Consolidated Balance Sheets (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | ASSETS: | | | | | | | Cash and cash equivalents | $102,542 | $131,494 | $43,641 | $148,930 | $135,111 | | Available-for-sale securities, at fair value | $7,521 | $7,689 | $7,790 | $8,032 | $7,996 | | Held-to-maturity securities, at amortized cost | $2,113 | $2,121 | $2,130 | $2,139 | $2,147 | | Loans held-for-sale | $2,025 | $2,267 | $487 | $65 | $257 | | Loans held-for-portfolio, net | $895,750 | $877,833 | $891,672 | $893,148 | $880,781 | | Total assets | $1,058,242 | $1,069,186 | $993,633 | $1,100,930 | $1,074,859 | | LIABILITIES: | | | | | | | Total deposits | $899,459 | $910,347 | $837,799 | $930,197 | $906,769 | | Borrowings | $25,000 | $25,000 | $25,000 | $40,000 | $40,000 | | Subordinated notes, net | $11,780 | $11,770 | $11,759 | $11,749 | $11,738 | | Total liabilities | $952,238 | $964,755 | $889,967 | $998,691 | $973,512 | | STOCKHOLDERS' EQUITY: | | | | | | | Total stockholders' equity | $106,004 | $104,431 | $103,666 | $102,239 | $101,347 | | Total liabilities and stockholders' equity | $1,058,242 | $1,069,186 | $993,633 | $1,100,930 | $1,074,859 | Key Financial Ratios Key financial ratios for Q2 2025 demonstrate improved profitability and efficiency, with significant increases in return on average assets, return on average equity, and net interest margin, alongside a notable decrease in the efficiency ratio Key Financial Ratios (unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Annualized return on average assets | 0.78% | 0.45% | 0.70% | 0.42% | 0.30% | | Annualized return on average equity | 7.78% | 4.53% | 7.40% | 4.50% | 3.17% | | Annualized net interest margin | 3.67% | 3.25% | 3.13% | 2.98% | 2.92% | | Annualized efficiency ratio | 73.88% | 86.31% | 75.25% | 84.31% | 89.86% | Per Common Share Data Per common share data for Q2 2025 shows an increase in both basic and diluted earnings per share, as well as book value per share, reflecting improved profitability and equity growth Per Common Share Data (unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Basic earnings per share | $0.80 | $0.45 | $0.75 | $0.45 | $0.31 | | Diluted earnings per share | $0.79 | $0.45 | $0.74 | $0.45 | $0.31 | | Weighted-average basic shares outstanding | 2,556,562 | 2,554,265 | 2,547,210 | 2,544,233 | 2,540,538 | | Weighted-average diluted shares outstanding | 2,577,990 | 2,578,609 | 2,578,771 | 2,569,368 | 2,559,015 | | Common shares outstanding at period-end | 2,566,069 | 2,566,069 | 2,564,907 | 2,564,095 | 2,557,284 | | Book value per share | $41.31 | $40.70 | $40.42 | $39.87 | $39.63 | Average Balance, Average Yield Earned, and Average Rate Paid Three Months Ended This section details the average balances, interest earned/paid, and yields/rates for interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, illustrating the components of net interest income and margin Average Balance, Average Yield Earned, and Average Rate Paid (Dollars in thousands, unaudited) | Metric | June 30, 2025 Average Outstanding Balance | June 30, 2025 Interest Earned/Paid | June 30, 2025 Yield/Rate | March 31, 2025 Average Outstanding Balance | March 31, 2025 Interest Earned/Paid | March 31, 2025 Yield/Rate | June 30, 2024 Average Outstanding Balance | June 30, 2024 Interest Earned/Paid | June 30, 2024 Yield/Rate | | :------------------------------------ | :-------------------------------------- | :--------------------------------- | :----------------------- | :--------------------------------------- | :---------------------------------- | :------------------------ | :--------------------------------------- | :---------------------------------- | :----------------------- | | Interest-Earning Assets: | | | | | | | | | | | Loans receivable | $895,039 | $13,695 | 6.14% | $896,822 | $12,588 | 5.69% | $891,863 | $12,320 | 5.56% | | Interest-earning cash | $102,572 | $1,097 | 4.29% | $95,999 | $1,010 | 4.27% | $120,804 | $1,586 | 5.28% | | Investments | $12,842 | $123 | 3.84% | $12,924 | $108 | 3.39% | $13,935 | $133 | 3.84% | | Total interest earning assets | $1,010,453 | $14,915 | 5.92% | $1,005,745 | $13,706 | 5.53% | $1,026,602 | $14,039 | 5.50% | | Interest-Bearing Liabilities: | | | | | | | | | | | Savings and money market accounts | $346,655 | $2,258 | 2.61% | $335,419 | $2,058 | 2.49% | $301,454 | $2,115 | 2.82% | | Demand and NOW accounts | $138,150 | $107 | 0.31% | $140,905 | $108 | 0.31% | $153,739 | $148 | 0.39% | | Certificate accounts | $288,286 | $2,860 | 3.98% | $289,960 | $3,039 | 4.25% | $317,496 | $3,731 | 4.73% | | Subordinated notes | $11,777 | $168 | 5.72% | $11,766 | $168 | 5.79% | $11,735 | $168 | 5.76% | | Borrowings | $25,007 | $267 | 4.28% | $25,000 | $262 | 4.25% | $40,000 | $429 | 4.31% | | Total interest bearing liabilities | $809,875 | $5,660 | 2.80% | $803,050 | $5,635 | 2.85% | $824,424 | $6,591 | 3.22% | | Net interest income/spread | | $9,255 | 3.12% | | $8,071 | 2.68% | | $7,448 | 2.28% | | Net interest margin | | | 3.67% | | | 3.25% | | | 2.92% | | Total deposits | $894,997 | $5,225 | 2.34% | $892,499 | $5,205 | 2.37% | $901,567 | $5,994 | 2.67% | Six Months Ended This section provides the average balances, interest earned/paid, and yields/rates for interest-earning assets and interest-bearing liabilities for the six months ended June 30, 2025, and June 30, 2024, offering a broader view of interest rate dynamics Average Balance, Average Yield Earned, and Average Rate Paid (Dollars in thousands, unaudited) | Metric | June 30, 2025 Average Outstanding Balance | June 30, 2025 Interest Earned/Paid | June 30, 2025 Yield/Rate | June 30, 2024 Average Outstanding Balance | June 30, 2024 Interest Earned/Paid | June 30, 2024 Yield/Rate | | :------------------------------------ | :-------------------------------------- | :--------------------------------- | :----------------------- | :--------------------------------------- | :---------------------------------- | :----------------------- | | Interest-Earning Assets: | | | | | | | | Loans receivable | $895,926 | $26,283 | 5.92% | $893,646 | $24,553 | 5.53% | | Interest-earning cash | $99,304 | $2,107 | 4.28% | $114,082 | $3,002 | 5.29% | | Investments | $11,551 | $232 | 4.05% | $12,633 | $244 | 3.88% | | Total interest-earning assets | $1,006,781 | $28,622 | 5.73% | $1,020,361 | $27,799 | 5.48% | | Interest-Bearing Liabilities: | | | | | | | | Savings and money market accounts | $341,068 | $4,317 | 2.55% | $292,954 | $3,981 | 2.73% | | Demand and NOW accounts | $139,520 | $214 | 0.31% | $156,751 | $289 | 0.37% | | Certificate accounts | $289,119 | $5,899 | 4.11% | $316,495 | $7,426 | 4.72% | | Subordinated notes | $11,772 | $336 | 5.76% | $11,730 | $336 | 5.76% | | Borrowings | $25,003 | $529 | 4.27% | $40,000 | $859 | 4.32% | | Total interest-bearing liabilities | $806,482 | $11,295 | 2.82% | $817,930 | $12,891 | 3.17% | | Net interest income/spread | | $17,327 | 2.91% | | $14,908 | 2.31% | | Net interest margin | | | 3.47% | | | 2.94% | | Total deposits | $893,755 | $10,430 | 2.35% | $896,858 | $11,696 | 2.62% | Loans The loan portfolio shows growth in commercial and multifamily, home equity, manufactured homes, and floating homes, while one-to-four family and construction and land loans experienced declines. Total loans held-for-portfolio, net, increased to $895.75 million at June 30, 2025 Loans (Dollars in thousands, unaudited) | Loan Category | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | One-to-four family | $262,672 | $262,457 | $269,684 | $271,702 | $268,488 | | Home equity | $28,582 | $28,112 | $26,686 | $25,199 | $26,185 | | Commercial and multifamily | $398,429 | $392,798 | $371,516 | $358,587 | $342,632 | | Construction and land | $49,926 | $42,492 | $73,077 | $85,724 | $96,962 | | Manufactured homes | $43,112 | $42,448 | $41,128 | $40,371 | $38,953 | | Floating homes | $91,448 | $86,626 | $86,411 | $86,155 | $81,622 | | Other consumer | $17,259 | $18,224 | $17,720 | $18,266 | $18,422 | | Commercial business loans | $14,779 | $14,690 | $15,605 | $17,481 | $17,860 | | Total loans | $906,207 | $887,847 | $901,827 | $903,485 | $891,124 | | Total loans held-for-portfolio, net | $895,750 | $877,833 | $891,672 | $893,148 | $880,781 | Deposits Total deposits decreased to $899.46 million at June 30, 2025, with decreases in noninterest-bearing demand, interest-bearing demand, and savings accounts, partially offset by an increase in certificates Deposits (Dollars in thousands, unaudited) | Deposit Type | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Noninterest-bearing demand | $124,197 | $126,687 | $132,532 | $129,717 | $124,915 | | Interest-bearing demand | $137,222 | $143,595 | $142,126 | $148,740 | $152,829 | | Savings | $61,813 | $63,533 | $61,252 | $61,455 | $63,368 | | Money market | $282,346 | $287,058 | $206,067 | $285,655 | $253,873 | | Certificates | $293,881 | $289,474 | $295,822 | $304,630 | $311,784 | | Total deposits | $899,459 | $910,347 | $837,799 | $930,197 | $906,769 | Credit Quality Data Credit quality significantly improved, with total nonperforming assets decreasing by 62.2% QoQ. The allowance for credit losses on loans to total nonperforming loans ratio dramatically increased to 253.59%, indicating strong coverage Credit Quality Data (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :-------------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total nonperforming loans | $3,366 | $9,653 | $7,491 | $8,489 | $8,909 | | OREO and other repossessed assets | $300 | $41 | — | $115 | $115 | | Total nonperforming assets | $3,666 | $9,694 | $7,491 | $8,604 | $9,024 | | Net charge-offs during the quarter | ($21) | ($21) | ($13) | ($14) | ($17) | | Provision for (release of) credit losses during the quarter | $170 | ($203) | $14 | $8 | ($109) | | Allowance for credit losses - loans | $8,536 | $8,393 | $8,499 | $8,585 | $8,493 | | Allowance for credit losses - loans to total loans | 0.94% | 0.95% | 0.94% | 0.95% | 0.96% | | Allowance for credit losses - loans to total nonperforming loans | 253.59% | 86.95% | 113.46% | 101.13% | 95.33% | | Nonperforming loans to total loans | 0.37% | 1.09% | 0.83% | 0.94% | 1.00% | | Nonperforming assets to total assets | 0.35% | 0.91% | 0.75% | 0.78% | 0.84% | Other Statistics Key operational statistics for Q2 2025 include a loans-to-deposits ratio of 100.75% and noninterest-bearing deposits representing 13.81% of total deposits. Average total assets and equity for the quarter also increased Other Statistics (Dollars in thousands, unaudited) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Total loans to total deposits | 100.75% | 97.53% | 107.64% | 97.13% | 98.27% | | Noninterest-bearing deposits to total deposits | 13.81% | 13.92% | 15.82% | 13.95% | 13.78% | | Average total assets for the quarter | $1,055,881 | $1,051,135 | $1,089,067 | $1,095,404 | $1,070,579 | | Average total equity for the quarter | $105,803 | $104,543 | $103,181 | $102,059 | $100,961 | Contact Information Contact Details Contact details for financial inquiries (Wes Ochs, EVP/CFO) and media inquiries (Laurie Stewart, President/CEO) are provided - For financial inquiries, contact Wes Ochs, Executive Vice President/CFO at (206) 436-8587[59] - For media inquiries, contact Laurie Stewart, President/CEO at (206) 436-1495[59]