Sound Financial Bancorp(SFBC) - 2025 Q4 - Annual Report

Credit Losses and Loan Portfolio - As of December 31, 2025, the allowance for credit losses (ACL) on loans was $8.6 million, representing 0.95% of the total loan portfolio, compared to $8.5 million or 0.94% at December 31, 2024[111]. - Total nonaccrual loans decreased to $5.8 million, or 0.64% of total loans outstanding, from $7.5 million, or 0.83% in the previous year[114]. - The ACL as a percentage of nonperforming loans increased to 148.82% at December 31, 2025, from 113.46% at December 31, 2024[117]. - Modified loans to troubled borrowers amounted to $1.1 million at December 31, 2025, down from $1.3 million in 2024[102]. - The company recorded a release of provision for credit losses of $212 thousand for the year ended December 31, 2025, compared to a provision of $161 thousand for the previous year[117]. - The company continuously monitors its loan portfolio for potential deterioration due to economic conditions, including inflation and interest rates[116]. Deposits and Funding - As of December 31, 2025, total deposits increased by $111.1 million to $948.9 million, primarily due to a $125.5 million (60.9%) increase in money market accounts[132]. - Core deposits represented approximately 85.3% of total deposits at December 31, 2025, down from 87.3% at December 31, 2024[129]. - The company had $27.0 million in public fund deposits at December 31, 2025, compared to $15.9 million at December 31, 2024[134]. - Total certificates of deposit increased by $3.8 million (1.3%) to $299.6 million at December 31, 2025[132]. - Approximately $184.7 million of the deposit portfolio was uninsured as of December 31, 2025[135]. - The average rate paid on total deposits was 2.32% for the year ended December 31, 2025, down from 2.64% in 2024[133]. - Money market accounts represented 34.9% of total deposits at December 31, 2025, up from 24.6% at December 31, 2024[132]. Regulatory Compliance and Oversight - The Company is subject to extensive regulatory oversight by the FDIC and WDFI, which includes maintaining minimum levels of regulatory capital[151]. - The FDIC assesses deposit insurance premiums quarterly, which could impact the Company's operating expenses if rates increase significantly[159]. - Sound Community Bank is subject to comprehensive regulation by the Federal Reserve, ensuring it operates in a safe and sound manner[192]. - Non-compliance with federal or state privacy and cybersecurity laws could lead to substantial regulatory fines and reputational harm[181]. - The federal banking agencies proposed lowering the CBLR requirement to 8% effective November 25, 2025, allowing institutions a grace period to meet qualifying criteria[165]. - Sound Community Bank received a "satisfactory" rating in its most recent CRA evaluation, indicating compliance with community reinvestment obligations[174]. Investment Securities - The company had no recognized credit losses on investment securities during the year ended December 31, 2025[126]. - At December 31, 2025, there were 15 securities in an unrealized loss position for more than 12 months, but the decline in value was not attributed to credit deterioration[126]. - The company closely monitors investment securities for changes in credit risk, with potential future earnings and equity impacts if market conditions deteriorate[126]. - Sound Financial Bancorp's investment strategy emphasizes safer investments, focusing on managing risks such as credit risk and interest-rate risk[121]. Capital and Borrowings - The Company had no outstanding borrowings and an unused borrowing capacity of $18.5 million and $20.8 million as of December 31, 2025 and 2024, respectively[141]. - The Company completed a private placement of $12.0 million in subordinated notes with a fixed interest rate of 5.25% until October 1, 2025, after which it will reset quarterly based on the three-month term SOFR plus 513 basis points[142]. - Sound Community Bank had $10.0 million in outstanding borrowings from the FHLB of Des Moines and an available line of credit of $187.7 million as of December 31, 2025, relying on FHLB advances for asset and loan growth[189]. - The Bank received $153 thousand in dividends from the FHLB of Des Moines during the year ended December 31, 2025[190]. Employee and Diversity Metrics - Sound Financial Bancorp had a total of 92 full-time employees and 30 part-time employees as of December 31, 2025, with an average employee tenure of 6.38 years[210][211]. - Approximately 61% of the workforce was female, and women held 69% of the Bank's management roles, highlighting a commitment to diversity[211].