SEATTLE, April 29, 2024 (GLOBE NEWSWIRE) -- Sound Financial Bancorp, Inc. (the "Company") (NASDAQ:SFBC), the holding company for Sound Community Bank (the "Bank"), today reported net income of $770 thousand for the quarter ended March 31, 2024, or $0.30 diluted earnings per share, as compared to net income of $1.2 million, or $0.47 diluted earnings per share, for the quarter ended December 31, 2023, and $2.2 million, or $0.83 diluted earnings per share, for the quarter ended March 31, 2023. The Company also announced today that its Board of Directors declared a cash dividend on Company common stock of $0.19 per share, payable on May 22, 2024 to stockholders of record as of the close of business on May 8, 2024. Comments from the President and Chief Executive Officer "In the first quarter of 2024, we observed a notable stabilization in our net interest margin compression. We experienced a smaller increase in the cost of funding compared to the trends observed throughout 2023. Furthermore, the yield on our interest-earning assets continued to improve. However, with net interest margin compression persisting and reduced residential lending continuing, we will remain vigilant in managing our operating expenses," remarked Laurie Stewart, President and Chief Executive Officer. "Despite ongoing wage pressures and contractual increases in areas such as data processing and services, the first quarter of 2024 exhibited only a marginal increase in operating expense compared to the same quarter in 2023. This underscores our commitment to rightsizing staffing for current growth and to leveraging efficiencies from strategic technology initiatives implemented over the past several years," continued Ms. Stewart."Additionally, while we experienced an increase in nonperforming assets, we do not believe this is indicative of greater market trends. Rather, the increase mainly reflected specific borrower situations for a few real estate collateralized properties that are well-secured and being managed by our credit team," concluded Ms. Stewart. Q1 2024 Financial Performance Total assets increased $91.5 million or 9.2% to $1.09 billion at March 31, 2024, from $995.2 million at December 31, 2023, and increased $82.3 million or 8.2% from $1.00 billion at March 31, 2023.     Net interest income decreased $107 thousand or 1.4% to $7.5 million for the quarter ended March 31, 2024, from $7.6 million for the quarter ended December 31, 2023, and decreased $1.9 million or 20.4% from $9.4 million for the quarter ended March 31, 2023.         Net interest margin ("NIM"), annualized, was 2.95% for the quarter ended March 31, 2024, compared to 3.04% for the quarter ended December 31, 2023 and 4.01% for the quarter ended March 31, 2023. Loans held-for-portfolio increased $3.4 million or 0.4% to $897.9 million at March 31, 2024, compared to $894.5 million at December 31, 2023, and increased $27.3 million or 3.1% from $870.5 million at March 31, 2023.         A $33 thousand and $27 thousand release of provision for credit losses was recorded for the quarters ended March 31, 2024 and December 31, 2023, respectively, compared to a $10 thousand provision for credit losses for the quarter ended March 31, 2023. At March 31, 2024, the allowance for credit losses on loans to total loans outstanding was 0.96%. Total deposits increased $90.3 million or 10.9% to $916.9 million at March 31, 2024, from $826.5 million at December 31, 2023, and increased $75.2 million or 8.9% from $841.6 million at March 31, 2023. Noninterest-bearing deposits increased $1.9 million or 1.5% to $128.7 million at March 31, 2024 compared to $126.7 million at December 31, 2023, and decreased $44.4 million or 25.7% compared to $173.1 million at March 31, 2023.         Total noninterest income was flat at $1.1 million for both the quarter ended March 31, 2024 and the quarter ended December 31, 2023, compared to $969 thousand for the quarter ended March 31, 2023. The loans-to-deposits ratio was 98% at March 31, 2024, compared to 108% at December 31, 2023 and 104% at March 31, 2023.         Total noninterest expense increased $350 thousand or 4.8% to $7.7 million for the quarter ended March 31, 2024, compared to $7.3 million for quarter ended December 31, 2023, and increased $41 thousand or 0.5% from $7.6 million for the quarter ended March 31, 2023. Total nonperforming loans increased $5.5 million or 154.6% to $9.1 million at March 31, 2024, from $3.6 million at December 31, 2023, and increased $7.8 million or 600.2% from $1.3 million at March 31, 2023. Nonperforming loans to total loans were 1.01% and the allowance for credit losses on loans to total nonperforming loans was 94.97% at March 31, 2024.         The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at March 31, 2024.           Operating Results Net interest income decreased $107 thousand, or 1.4%, to $7.5 million for the quarter ended March 31, 2024, compared to $7.6 million for the quarter ended December 31, 2023, and decreased $1.9 million, or 20.4%, from $9.4 million for the quarter ended March 31, 2023. The decrease in the current quarter compared to both of the prior periods was primarily the result of increases in funding costs, primarily the rates paid on and balances of money market and certificate accounts, partially offset by an increase in the average balance of and yield earned on interest-earning assets. Interest income increased $423 thousand, or 3.2%, to $13.8 million for the quarter ended March 31, 2024, compared to $13.3 million for the quarter ended December 31, 2023, and increased $1.6 million, or 13.0%, from $12.2 million for the quarter ended March 31, 2023. The increase from the prior quarter was primarily due to higher average balances of loans and interest-bearing cash, coupled with a nine basis point and three basis point increase in the average yield on loans and interest-bearing cash, respectively, reflecting increases in rates on newly originated loans and strategic management of our cash balances to maximize the highest yielding accounts. This increase was partially offset by a decline in the average balance of and yield on investments. The increase in interest income from the same quarter last year was due primarily to higher average balances of loans and interest-bearing cash, a 17 basis point increase in the average yield on loans, a 109 basis point increase in the average yield on interest-bearing cash, and a two basis point increase in the average yield on investments, partially offset by a decline in the average balance of investments. Interest income on loans increased $200 thousand, or 1.7%, to $12.2 million for the quarter ended March 31, 2024, compared to $12.0 million for the quarter ended December 31, 2023, and increased $852 thousand, or 7.5%, from $11.4 million for the quarter ended March 31, 2023. The average balance of total loans was $895.4 million for the quarter ended March 31, 2024, up from $884.7 million for the quarter ended December 31, 2023 and $867.7 million for the quarter ended March 31, 2023. The average yield on total loans was 5.49% for the quarter ended March 31, 2024, up from 5.40% for the quarter ended December 31, 2023 and 5.32% for the quarter ended March 31, 2023. The increase in the average loan yield during the current quarter compared to both the prior quarter and the first quarter of 2023 was primarily due to the origination of loans at higher interest rates. Additionally, variable rate loans resetting at higher rates impacted the increase in average loan yield from one year ago. The increase in the average balance during the current quarter compared to the prior quarter was primarily due to growth in commercial and multifamily loans and consumer loans, with the growth in consumer loans coming primarily from floating homes loans. The increase in the average loan yield during the current quarter compared to the first quarter of 2023 was primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates. The increase in the average balance of loans during the current quarter compared to the first quarter of 2023 was primarily due to loan growth across all categories, excluding commercial business loans. Interest income on investments decreased $18 thousand to $111 thousand for the quarter ended March 31, 2024, compared to $129 thousand for the quarter ended December 31, 2023, and decreased $11 thousand from $122 thousand for the quarter ended March 31, 2023, primarily due to lower average balances. The average yield on investments decreased from the prior quarter due to an annual rider charge on our annuity investments that occurs during the first quarter of each year. Interest income on interest-bearing cash increased $241 thousand to $1.4 million for the quarter ended March 31, 2024, compared to $1.2 million for the quarter ended December 31, 2023, and increased $745 thousand from $671 thousand for the quarter ended March 31, 2023, due to a higher average yield on and higher average balances of interest-bearing cash. Interest expense increased $530 thousand, or 9.2%, to $6.3 million for the quarter ended March 31, 2024, from $5.8 million for the quarter ended December 31, 2023, and increased $3.5 million, or 124.8%, from $2.8 million for the quarter ended March 31, 2023. The increase in interest expense during the current quarter from the prior quarter was primarily the result of $25.9 million and $15.5 million increases in the average balance of savings and money market accounts and certificate accounts, respectively, as well as higher average rates paid on all categories of interest-bearing deposits (other than demand and NOW accounts), partially offset by a $10.1 million decrease in the average balance of demand and NOW accounts. The increase in interest expense during the current quarter from the comparable period a year ago was primarily the result of a $68.9 million increase in the average balance of certificate accounts and an $120.2 million increase in the average balance of savings and money market accounts, as well as higher average rates paid on all interest-bearing liabilities (excluding subordinated notes), partially offset by a $81.3 million decrease in the average balance of demand and NOW accounts and a $4.9 million decrease in the average balance of FHLB advances. The average cost of deposits was 2.57% for the quarter ended March 31, 2024, up from 2.38% for the quarter ended December 31, 2023 and 1.05% for the quarter ended March 31, 2023. The average cost of FHLB advances was 4.31% for the quarter ended March 31, 2024, up from 4.26% for the quarter ended December 31, 2023, and down from 4.51% for the quarter ended March 31, 2023. NIM (annualized) was 2.95% for the quarter ended March 31, 2024, down from 3.04% for the quarter ended December 31, 2023 and 4.01% for the quarter ended March 31, 2023. The decrease in NIM from the prior quarter was primarily due to the cost of funding increasing at a faster pace than the yield earned on interest-earning assets, driven by the higher average balance of money market and certificate accounts at higher interest rates. A release of provision for credit losses of $33 thousand was recorded 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. This compared to a release of provision for credit losses of $27 thousand for the quarter ended December 31, 2023, consisting of a provision for credit losses on loans of $337 thousand and a release of the provision for credit losses on unfunded loan commitments of $364 thousand, and a provision for credit losses of $10 thousand for the quarter ended March 31, 2023, consisting of a provision for loan losses of $245 thousand and a release of the provision for credit losses on unfunded loan commitments of $235 thousand. The decrease in the provision for credit losses for the quarter ended March 31, 2024 compared to the quarter ended December 31, 2023 resulted primarily from lower reserves on our other consumer loan portfolio and residential loan portfolios due to qualitative adjustments for changes in concentration and market conditions, partially offset by the increase in the allowance for credit losses on loans due to portfolio growth, and an increase in nonaccrual loans and the weighted average life of the portfolio. In addition, expected loss estimates consider various factors including market conditions, customer specific information, projected delinquencies, and the impact of economic conditions on borrowers' ability to repay. Noninterest income increased $30 thousand, or 2.8%, to $1.1 million for the quarter ended March 31, 2024, compared to $1.1 million for the quarter ended December 31, 2023, and increased $127 thousand, or 13.1% from $1.0 million for the quarter ended March 31, 2023. The increase from the prior quarter was primarily related to a $36 thousand increase in service charges and fee income, a $31 thousand upward adjustment in fair value adjustment on mortgage servicing rights due to higher market interest rates, and a $14 thousand increase in net gain on sale of loans as a result of a higher percentage gain in the first quarter of 2024. These increases were partially offset by a $45 thousand decrease in earnings on BOLI policies due to a higher change in market values in the fourth quarter of 2023 as compared to the first quarter of 2024 and a $6 thousand decrease in servicing income due to a smaller servicing portfolio. The increase in noninterest income from the comparable period in 2023 was primarily due to a $31 thousand increase in service charges and fee income, a $26 thousand increase in the cash surrender value of BOLI due to higher market rates, a $75 thousand improvement in the fair value adjustment on mortgage servicing rights due to higher market rates and a $12 thousand increase in net gain on sale of loans as a result of increased sales volume, partially offset by a decrease in mortgage servicing income as a result of the portfolio paying down at a faster speed than we are replacing the loans. Loans sold during the quarter ended March 31, 2024, totaled $4.2 million, compared to $4.5 million and $3.9 million of loans sold during the quarters ended December 31, 2023 and March 31, 2023, respectively. Noninterest expense increased $350 thousand, or 4.8%, to $7.7 million for the quarter ended March 31, 2024, compared to $7.3 million for the quarter ended December 31, 2023, and increased $41 thousand, or 0.5%, from $7.6 million for the quarter ended March 31, 2023. The increase from the quarter ended December 31, 2023 was primarily a result of higher salaries and benefits, partially offset by lower data processing and operations expenses. Salaries and employee benefits increased $741 thousand during the quarter ended March 31, 2024 compared to the prior quarter due to higher wages as a result of annual wage increases, a higher incentive compensation accrual, higher commissions expense, lower deferred salaries and higher payroll taxes associated with the aforementioned increases, as well as increases in medical expense and employee stock ownership plan ("ESOP") expenses. The increase in the ESOP expense primarily related to the ability to purchase shares for the ESOP in the prior year at a lower price than budgeted resulting in minimal ESOP expense during the fourth quarter of 2023. Operations expense decreased $80 thousand primarily due to decreases in various expenses, including charitable contributions, loan origination costs and marketing partially due to timing of transactions and the level of transactional activity. Additionally, losses related to repurchased loans and operational activities decreased. The decrease in data processing expenses primarily related to the reimbursement of data processing expenses by one of our vendors related to the implementation of new software in the first quarter of 2024 and higher expenses in the fourth quarter of 2023 related to annual true up of costs related to our core processor. The increase in noninterest expense compared to the quarter ended March 31, 2023 was primarily due to an increase in salaries and benefits of $58 thousand, reflecting an increase in incentive compensation as a result of deposit and loan production, and higher medical expense, partially offset by lower salaries due to the restructuring of positions at the Bank, lower deferred compensation, lower stock compensation and higher deferred salaries. Data processing expenses increased due to software-related costs for new technology being implemented at the Bank and higher processing charges related to a higher volume of transactional activity and a $36 thousand increase in regulatory assessments due to the change in the assessment rate. These increases were partially offset by decrease in net (gain) loss on OREO and repossessed assets as a result of the write off of one OREO property in the first quarter of 2023. Balance Sheet Review, Capital Management and Credit Quality Assets at March 31, 2024 totaled $1.09 billion, up from $995.2 million at December 31, 2023 and up from $1.00 billion at March 31, 2023. The increase in total assets from December 31, 2023 was primarily due to an increase in cash and cash equivalents, and to a lesser extent, an increase in loans held-for-portfolio. The increase from one year ago was primarily a result of an increase in cash and cash equivalents and in loans held-for-portfolio. Cash and cash equivalents increased $88.3 million, or 177.7%, to $138.0 million at March 31, 2024, compared to $49.7 million at December 31, 2023, and increased $56.4 million, or 69.1%, from $81.6 million at March 31, 2023. The increase from December 31, 2023 was primarily due to the strategic decision to sell reciprocal deposits at the end of 2023, which reduced our cash balances. These reciprocal deposits returned to our balance sheet in the first quarter of 2024, which included deposits that had been generated during the fourth quarter of 2023 and subsequently sold. The increase from one year ago was primarily due to the increase in deposits exceeding increases in our loans held-for-portfolio. Investment securities decreased $181 thousand, or 1.7%, to $10.3 million at March 31, 2024, compared to $10.5 million at December 31, 2023, and decreased $519 thousand, or 4.8%, from $10.8 million at March 31, 2023. Held-to-maturity securities totaled $2.2 million at March 31, 2024, December 31, 2023, and March 31, 2023. Available-for-sale securities totaled $8.1 million at March 31, 2024, compared to $8.3 million at December 31, 2023 and $8.6 million at March 31, 2023. The decrease in available-for-sale securities from the prior quarter-end was primarily due to higher net unrealized losses resulting from an increase in municipal bond yields during the current quarter, offset by regularly scheduled payments. The decrease from one year ago was primarily due to regularly scheduled payments, partially offset by lower net unrealized losses resulting from an increase in market values during the past 12 months. Loans held-for-portfolio increased to $897.9 million at March 31, 2024, from $894.5 million at December 31, 2023 and $870.5 million at March 31, 2023. The increase in loans held-for-portfolio at March 31, 2024, compared to December 31, 2023, primarily resulted from increases in commercial and multifamily loans and floating homes loans, partially offset by decreases in construction and land loans and commercial business loans. The increase in commercial and multifamily loans from December 31, 2023 primarily resulted from conversion of construction projects to permanent financing. The increases in floating homes loans from December 31, 2023 was primarily due to new originations. The increase in loans held-for-portfolio at March 31, 2024, compared to one year ago, primarily resulted from continued strong loan demand and slower prepayments, with increases across all loan categories; excluding construction and land loans and commercial business loans. Nonperforming assets ("NPAs"), which are comprised of nonaccrual loans; (including nonperforming modified loans), other real estate owned ("OREO") and other repossessed assets, increased $5.6 million, or 135.9%, to $9.7 million at March 31, 2024, from $4.1 million at December 31, 2023 and increased $7.9 million, or 421.9%, from $1.9 million at March 31, 2023. The increase in NPAs from December 31, 2023 was primarily due to the addition of $8.0 million to nonaccrual status, which included a $3.7 million matured commercial real estate loan in process of securing financing from another lender, $3.2 million for two floating homes loans to a single borrower, and a $1.0 million commercial real estate loan, all of which are well secured, and one manufactured home loan of $115 thousand that was repossessed in the first quarter of 2024. These increases in NPAs were partially offset by the payoff of one large commercial business loan totaling $2.1 million, the return of three loans to accrual status, and normal payment amortization. The increase from one year ago was primarily due to the large additions noted above and one manufactured home loan of $115 thousand that was repossessed in the first quarter of 2024. These increases in NPAs were partially offset by payoffs of $343 thousand, the return of five loans to accrual status, charge-offs of $48 thousand, and normal amortization. NPAs to total assets were 0.90%, 0.42% and 0.19% at March 31, 2024, December 31, 2023 and March 31, 2023, respectively. The allowance for credit losses on loans to total loans outstanding was 0.96%, 0.98% and 0.98% at March 31, 2024, December 31, 2023 and March 31, 2023, respectively. Net loan charge-offs for the first quarter of 2024 totaled $56 thousand, compared to $15 thousand for the fourth quarter of 2023, and $72 thousand for the first quarter of 2023. The following table summarizes our NPAs at the dates indicated (dollars in thousands):   March 31,2024   December 31,2023   September 30,2023   June 30,2023   March 31,2023 Nonperforming Loans:                   One-to-four family $ 835     $ 1,108     $ 1,137     $ 914     $ 697   Home equity loans   83       84       86       88       138   Commercial and multifamily   4,747       —       306       323       —   Construction and land   29       —       78       25       322   Manufactured homes   166       228       151       156       134   Floating homes   3,192       —       —       —       —   Commercial business   —       2,135       —       —       —   Other consumer   1       1       4       5       1   Total nonperforming loans   9,053       3,556       1,762       1,511       1,292   OREO and Other Repossessed Assets:                   One-to-four family   —       —       —       —       —   Commercial and multifamily(1)   575       575       575       575       575   Manufactured homes   115       —       —       —       —   Total OREO and repossessed assets   690       575       575       575       575   Total NPAs $ 9,743     $ 4,131     $ 2,337     $ 2,086     $ 1,867                       Percentage of Nonperforming Loans:                   One-to-four family   8.5 %     26.9 %     48.7 %     43.8 %     37.3 % Home equity loans   0.9       2.0       3.7       4.2       7.4   Commercial and multifamily   48.7       —       13.1       15.5       —   Construction and land   0.3       —       3.3       1.2       17.3   Manufactured homes   1.7       5.5       6.5       7.5       7.2   Floating homes   32.8       —       —       —       —   Commercial business   —       51.7       —       —       —   Other consumer   —       —       0.2       0.2       —   Total nonperforming loans   92.9       86.1       75.4       72.4       69.2   Percentage of OREO and Other Repossessed Assets:                   Commercial and multifamily   5.9       13.9       24.6       27.6       30.8   Manufactured homes   1.2       —       —       —       —   Total OREO and repossessed assets   7.1       13.9       24.6       27.6       30.8   Total NPAs   100.0 %     100.0 %     100.0 %     100.0 %     100.0 % (1) This balance represents one commercial property. Subsequent to March 31, 2024, this property was sold for a small net gain on sale. The following table summarizes the allowance for credit losses at the dates and for the periods indicated (dollars in thousands, unaudited):   At or For the Quarter Ended:   March 31,2024   December 31,2023   September 30,2023   June 30,2023   March 31,2023 Allowance for Credit Losses on Loans                   Balance at beginning of period $ 8,760     $ 8,438     $ 8,217     $ 8,532     $ 7,599   Adoption of ASU 2016-13(1)   —       —       —       —       760   Provision for (release of) credit losses during the period   (106 )     337       224       (242 )     245   Net charge-offs during the period   (56 )     (15 )     (3 )     (73 )     (72 ) Balance at end of period $ 8,598     $ 8,760     $ 8,438     $ 8,217     $ 8,532   Allowance for Credit Losses on Unfunded Loan Commitments                   Balance at beginning of period $ 193     $ 557     $ 706     $ 795     $ 335   Adoption of ASU 2016-13(1)   —       —       —       —       695   Provision for (reversal of) credit losses   73       (364 )     (149 )     (89 )     (235 ) Balance at end of period   266       193       557       706       795   Allowance for Credit Losses $ 8,864     $ 8,953     $ 8,995     $ 8,923     $ 9,327   Allowance for credit losses on loans to total loans   0.96 %     0.98 %     0.96 %     0.96 %     0.98 % Allowance for credit losses to total loans