Sound Financial Bancorp Inc
For the period ended Sep 30, 2024. Filed Nov 13, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 13, 2024
SFBC$45.02-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001541119-24-000046
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-13.
0001541119-24-000056
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 138 previous paragraphs and 141 current paragraphs.
79 unchanged; 56 reworded; 4 added; 3 removed; 0 previous and 2 current paragraphs rearranged.
Tables are not compared: 16 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
Interest income on cash and cash equivalents increased $2.4 million, or 130.19% to $4.8 million for the nine months ended September 30, 2024, compared to $2.4 million for the nine months ended September 30, 2023. The increase was due to a higher average balance of and yield on cash and cash equivalents. The average yield on cash and cash equivalents increased to 5.28% for the nine months ended September 30, 2024, compared to 4.67% for the nine months ended September 30, 2023, as a result of the higher interest rate environment. During September 2024 and November 2024, the Federal Reserve lowered the federal funds rate by 50 basis points and 25 basis points, respectively, which is expected to decrease the average yield on cash and cash equivalents in future periods. The average balance of cash and cash equivalents was $122.2 million for the nine months ended September 30, 2024, compared to $70.1 million for the nine months ended September 30, 2023. The increase in the average balance was due to higher average cash balances, as deposits increased during the period at a faster pace than we were able to increase loans.
Current report
Noninterest income decreased $446 thousand, or 11.3%, to $3.5 million for the nine months ended September 30, 2024, as compared to $3.9 million for the nine months ended September 30, 2023, as reflected below (dollars in thousands):
Current report
The decrease in noninterest expense was primarily due to a decrease in data processing expenses of $229 thousand, due to one-time costs related to new technology implemented in 2023. Operations expense decreased $85 thousand due to reductions in loan origination costs, office expenses, marketing costs, legal fees, and charitable contributions, partially offset by an operational loss from a fraudulently obtained loan charged off in the third quarter of 2024. Occupancy expenses decreased $44 thousand, primarily due to fully amortized leasehold improvements. Salaries and benefits increased $321 thousand, reflecting higher incentive compensation, medical expenses, retirement plan costs, and directors' fees (due to the addition of a new director), partially offset by lower salaries from a restructuring of positions at the end of 2023.
Current report
Noninterest expense increased $252 thousand, or 1.1%, to $23.1 million during the nine months ended September 30, 2024, compared to $22.8 million during the nine months ended September 30, 2023, as reflected below (dollars in thousands):
Removed paragraphs (3)
Previous report
Noninterest income decreased $600 thousand, or 21.0%, to $2.3 million for the six months ended June 30, 2024, as compared to $2.9 million for the six months ended June 30, 2023, as reflected below (dollars in thousands):
Previous report
Noninterest expense increased $282 thousand, or 1.9%, to $15.4 million during the six months ended June 30, 2024, compared to $15.1 million during the six months ended June 30, 2023, as reflected below (dollars in thousands):
Previous report
Operations expense increased primarily due to increases in various accounts including legal fees, state and local taxes, charitable contributions, marketing costs, consulting fees, loan origination fees and costs related to our deposit products, specifically debit card processing expenses, partially offset by lower office costs. The increases in these accounts primarily relate to annual price increases, as well as consulting fees for projects not able to be capitalized. The decrease in office costs reflects our strategic commitment to reducing expenses as we recognized over $100 thousand of operations expense savings. Regulatory assessments and data processing expenses rose due to the reasons noted above. The net gain on OREO and repossessed assets in the current year relates to the sale of a longtime OREO property for a gain on sale partially offset by expenses related to the foreclosure of one manufactured home loan in the first quarter of 2024. The net loss on OREO and repossessed assets in the prior year relates to the expenses associated with, and the charge-off of, a former OREO property during the first quarter of 2023 which was partially offset by the subsequent sale of that property in the second quarter of 2023. Occupancy expenses decreased for the reason noted above.
Reworded paragraphs (56)
Previous wording
Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:
Current wording
Certain matters discussed in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit loss experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to:
Previous wording
•changes in the interest rate environment, including past increases in the Board of Governors of the Federal Reserve System (the Federal Reserve) benchmark rate and duration of such increased levels, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
Current wording
•changes in the interest rate environment, including increases and decreases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration of such rates, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
Previous wording
•the impact of inflation and the Federal Reserve monetary policy;
Current wording
•the impact of inflation and the Federal Reserve’s monetary policy decisions;
Previous wording
•our ability to pay dividends on our common stock;
Current wording
•our ability to pay dividends on and repurchase our common stock;
Previous wording
•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on our third-party vendors;
Current wording
•disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on those of our third-party vendors;
Previous wording
Sound Community Bank’s deposits are insured up to applicable limits by the FDIC. At June 30, 2024, Sound Financial Bancorp, on a consolidated basis, had assets of $1.07 billion, net loans held-for-portfolio of $880.8 million, deposits of $906.8 million and stockholders’ equity of $101.3 million. The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol “SFBC.” Our executive offices are located at 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121.
Current wording
Sound Community Bank’s deposits are insured up to applicable limits by the FDIC. At September 30, 2024, Sound Financial Bancorp, on a consolidated basis, had assets of $1.10 billion, net loans held-for-portfolio of $893.1 million, deposits of $930.2 million and stockholders’ equity of $102.2 million. The common stock of Sound Financial Bancorp is listed on the NASDAQ Capital Market under the symbol “SFBC.” Our executive offices are located at 2400 3rd Avenue, Suite 150, Seattle, Washington, 98121.
Previous wording
General. Total assets increased $79.6 million, or 8.0%, to $1.07 billion at June 30, 2024 from $995.2 million at December 31, 2023. The increase primarily was a result of an increase in cash and cash equivalents reflecting increased deposits, partially offset by a decrease in loans held-for-portfolio.
Current wording
General. Total assets increased $105.7 million, or 10.6%, to $1.10 billion at September 30, 2024 from $995.2 million at December 31, 2023. The increase primarily was a result of an increase in cash and cash equivalents and loans held-for-portfolio.
Previous wording
Cash and Securities, and Investment Securities. Cash and cash equivalents increased $85.4 million, or 171.9%, to $135.1 million at June 30, 2024 from $49.7 million at December 31, 2023. The increase 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. In addition, balances of cash and cash equivalents increased as a result of a decrease in our loan portfolio and higher overall deposit balances.
Current wording
Cash and Securities, and Investment Securities. Cash and cash equivalents increased $99.2 million, or 199.7%, to $148.9 million at September 30, 2024 from $49.7 million at December 31, 2023. The increase 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. In addition, balances of cash and cash equivalents increased as a result of higher overall deposit balances.
Previous wording
Investment securities decreased $310 thousand, or 3.0%, to $10.1 million at June 30, 2024, compared to $10.5 million at December 31, 2023. Held-to-maturity securities totaled $2.1 million at June 30, 2024, compared to $2.2 million at December 31, 2023. Available-for-sale securities totaled $8.0 million at June 30, 2024, compared to $8.3 million at December 31, 2023. The decrease in available-for-sale securities was primarily due to regularly scheduled payments and higher net unrealized losses resulting from an increase in municipal bond yields during the first half of 2024.
Current wording
Investment securities decreased $282 thousand, or 2.7%, to $10.2 million at September 30, 2024, compared to $10.5 million at December 31, 2023. Held-to-maturity securities totaled $2.1 million at September 30, 2024, compared to $2.2 million at December 31, 2023. Available-for-sale securities totaled $8.0 million at September 30, 2024, compared to $8.3 million at December 31, 2023. The decrease in available-for-sale securities was primarily due to regularly scheduled payments, partially offset by lower net unrealized losses resulting from an increase in yields on our agency mortgage backed securities during 2024.
Previous wording
Loans. Loans held-for-portfolio, net, decreased $4.9 million, or 0.6%, to $880.8 million at June 30, 2024 from $885.7 million at December 31, 2023.
Current wording
Loans. Loans held-for-portfolio, net, increased $7.4 million, or 0.8%, to $893.1 million at September 30, 2024 from $885.7 million at December 31, 2023.
Previous wording
As noted in the table above, decreases in the loan portfolio were driven primarily by decreases in construction and land loans, which was primarily due to projects completing and either paying off or converting to permanent financing, and decreases in one-to-four-family loans, which was primarily due to one low yielding jumbo mortgage loan that the borrower paid off early and normal loan payments exceeding loan originations. In addition, other consumer and commercial business loans, decreased due to because of payoffs and paydowns, including the payoff of $2.1 million related to one commercial business loan that was previously on nonaccrual. These decreases were partially offset by increases in commercial and multifamily and floating home loans and, to a lesser extent, increases in home equity and manufactured home loans. The increase in commercial and multifamily loans was primarily due to the conversion of construction projects to permanent financing, while the increase in floating home loans was due to the funding of a large portfolio of individual loans that had been delayed in our pipeline. The increase in home equity loans was primarily driven by homeowners utilizing the equity in their homes. The increase in manufactured home loans was primarily the result of affordability of these homes in the current market and internal efficiencies in how we process these loans.
Current wording
As noted in the table above, increases in the loan portfolio were driven primarily by increases in commercial and multifamily loans, floating home loans, home equity loans, and manufactured home loans. The increase in commercial and multifamily loans was primarily due to the conversion of construction projects to permanent financing, while the increase in floating home loans was due to the funding of a large portfolio of individual loans that had been delayed in our pipeline. The increase in home equity loans was primarily driven by homeowners utilizing the equity in their homes. The increase in manufactured home loans was primarily the result of affordability of these homes in the current market and internal efficiencies in how we process these loans. These increases were partially offset by decreases in construction and land loans, which were primarily due to project completions and reduced demand caused by higher interest rates, which limited new financing opportunities, and decreases in one-to-four-family loans, which was primarily due to one low yielding jumbo mortgage loan that the borrower paid off early and normal loan payments exceeding loan originations. In addition, other consumer and commercial business loans decreased because of payoffs and paydowns, including the payoff of a $2.1 million commercial business loan that was previously on nonaccrual.
Previous wording
At June 30, 2024, our loan portfolio, net of deferred loan fees, remained well-diversified. At that date, commercial and multifamily real estate loans accounted for 38.4% of total loans, one-to-four family loans, including home equity loans, accounted for 33.0% of total loans, commercial business loans accounted for 2.0% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 15.7% of total loans. Construction and land loans accounted for 10.9% of total loans at June 30, 2024.
Current wording
At September 30, 2024, our loan portfolio, net of deferred loan fees, remained well-diversified. At that date, commercial and multifamily real estate loans accounted for 39.7% of total loans, one-to-four family loans, including home equity loans, accounted for 32.9% of total loans, commercial business loans accounted for 1.9% of total loans, and consumer loans, consisting of manufactured homes, floating homes, and other consumer loans, accounted for 16.0% of total loans. Construction and land loans accounted for 9.5% of total loans at September 30, 2024.
Previous wording
Loans held-for-sale totaled $257 thousand at June 30, 2024, compared to $603 thousand at December 31, 2023. The decrease was primarily due to timing of mortgage originations and sales.
Current wording
Loans held-for-sale totaled $65 thousand at September 30, 2024, compared to $603 thousand at December 31, 2023. The decrease was primarily due to timing of mortgage originations and sales.
Previous wording
Our ACL — loans decreased $267 thousand, or 3.0%, to $8.5 million at June 30, 2024, from $8.8 million at December 31, 2023. The decrease in the ACL - loans from December 31, 2023 to June 30, 2024 was primarily a result of lower reserves on our other consumer loan portfolio and residential loan portfolios due to qualitative adjustments for changes in concentration and market conditions and a decrease in the ACL- loans due to portfolio shrinkage, partially offset by an increase in nonaccrual loans and the weighted average life of the portfolio. See “Comparison of Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023 — Provision for Credit Losses.”
Current wording
Our ACL — loans decreased $175 thousand, or 2.0%, to $8.6 million at September 30, 2024, from $8.8 million at December 31, 2023. The decrease in the ACL - loans from December 31, 2023 to September 30, 2024 was primarily a result of 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 an increase in the ACL- loans due to portfolio growth, an increase in nonaccrual loans and an increase in the weighted average life of the portfolio. See “Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 — Provision for Credit Losses.”
Previous wording
Nonperforming assets (“NPAs”), which are comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $4.9 million, or 118.4%, to $9.0 million, or 0.84% of total assets, at June 30, 2024 from $4.1 million, or 0.42% of total assets, at December 31, 2023.
Current wording
Nonperforming assets (“NPAs”), which are comprised of nonperforming loans (nonaccrual loans and nonperforming modified loans), other real estate owned (“OREO”) and repossessed assets, increased $4.5 million, or 108.3%, to $8.6 million, or 0.78% of total assets, at September 30, 2024 from $4.1 million, or 0.42% of total assets, at December 31, 2023.
Previous wording
The increase in NPAs primarily was due to the addition of $8.7 million of loans 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 payoff of one floating home loan of $722 thousand that was new in the first quarter of 2024 (included above in additions), the return of four loans to accrual status, and normal payment amortization. The percentage of nonperforming loans to total loans was 1.00% at June 30, 2024, compared to 0.40% of total loans at December 31, 2023.
Current wording
The increase in NPAs primarily was due to the addition of $9.0 million of loans 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 a $2.1 million commercial business loan, the payoff of one floating home loan of $722 thousand that was new in the first quarter of 2024 (included above in additions), the return of five loans to accrual status, and normal payment amortization. Subsequent to September 30, 2024, the repossessed manufactured home noted above was sold for a small gain on sale. The percentage of nonperforming loans to total loans was 0.94% at September 30, 2024, compared to 0.40% at December 31, 2023.
Previous wording
Mortgage Servicing Rights. The fair value of mortgage servicing rights decreased $92 thousand or 2.0%, to $4.5 million at June 30, 2024 from $4.6 million at December 31, 2023. We record mortgage servicing rights on loans sold with servicing retained and upon acquisition of a servicing portfolio. Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.
Current wording
Mortgage Servicing Rights. The fair value of mortgage servicing rights increased $33 thousand or 0.7%, to $4.7 million at September 30, 2024 from $4.6 million at December 31, 2023. We record mortgage servicing rights on loans sold with servicing retained and upon acquisition of a servicing portfolio. Mortgage servicing rights are carried at fair value. If the fair value of our mortgage servicing rights fluctuates significantly, our financial results could be materially impacted.
Previous wording
Deposits and Borrowings. Total deposits increased $80.2 million, or 9.7%, to $906.8 million at June 30, 2024 from $826.5 million at December 31, 2023. The increase was largely a result of the strategic movement of reciprocal deposits off balance sheet at year-end, which then returned in the first quarter of 2024. Additionally, there was an increase in money market and time deposits, which was partially offset by decreases in public funds accounts, noninterest-bearing and interest-bearing demand accounts, and savings accounts. The shift occurred as interest rate sensitive clients moved a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market and time deposits. Noninterest-bearing deposits decreased $1.8 million, or 1.4%, to $124.9 million at June 30, 2024, compared to $126.7 million at December 31, 2023. Noninterest-bearing deposits represented 13.8% of total deposits at June 30, 2024, compared to 15.3% at December 31, 2023.
Current wording
Deposits and Borrowings. Total deposits increased $103.7 million, or 12.5%, to $930.2 million at September 30, 2024 from $826.5 million at December 31, 2023. The increase was largely a result of the strategic movement of reciprocal deposits off balance sheet at year-end, which then returned in the first quarter of 2024. Additionally, there was an increase in money market accounts, which was partially offset by decreases in public funds accounts, interest-bearing demand accounts, and savings accounts. The shift occurred as interest rate sensitive clients moved a portion of their non-operating deposit balances from lower costing deposits, including noninterest-bearing deposits, into higher costing money market accounts. Noninterest-bearing deposits increased $3.0 million, or 2.4%, to $129.7 million at September 30, 2024, compared to $126.7 million at December 31, 2023. Noninterest-bearing deposits represented 13.9% of total deposits at September 30, 2024, compared to 15.3% at December 31, 2023.
Previous wording
The aggregate amount of time deposits in denominations of more than $250,000 at June 30, 2024 and December 31, 2023, totaled $89.6 million and $88.3 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of June 30, 2024, uninsured deposits totaled $148.9 million, which represented 16.4% of total deposits, as compared to uninsured deposits of $140.1 million, or 17.0% of total deposits as of December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuation within deposit accounts.
Current wording
The aggregate amount of time deposits in denominations of more than $250,000 at September 30, 2024 and December 31, 2023, totaled $88.1 million and $88.3 million, respectively. Deposit amounts in excess of $250,000 are not federally insured. As of September 30, 2024, uninsured deposits totaled $148.1 million, which represented 15.9% of total deposits, as compared to uninsured deposits of $140.1 million, or 17.0% of total deposits as of December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements. The increase in uninsured deposits primarily related to jumbo tier pricing offered on some of our deposit products, as well as normal fluctuation within deposit accounts.
Previous wording
Stockholders’ Equity. Total stockholders’ equity increased $693 thousand, or 0.7%, to $101.3 million at June 30, 2024, from $100.7 million at December 31, 2023. This increase primarily reflects $1.6 million of net income earned during the six months ended June 30, 2024 and $33 thousand in proceeds from exercises of stock options, partially offset by the cash payment of $972 thousand in dividends to the Company’s stockholders.
Current wording
Stockholders’ Equity. Total stockholders’ equity increased $1.6 million, or 1.6%, to $102.2 million at September 30, 2024, from $100.7 million at December 31, 2023. This increase primarily reflects $2.7 million of net income earned during the nine months ended September 30, 2024 and $251 thousand in proceeds from exercises of stock options, partially offset by the cash payment of $1.5 million in dividends to the Company’s stockholders.
Previous wording
Comparison of Results of Operation for the Three and Six Months Ended June 30, 2024 and 2023
Current wording
Comparison of Results of Operation for the Three and Nine Months Ended September 30, 2024 and 2023
Previous wording
Q2 2024 vs Q2 2023. Net income decreased $2.1 million, or 72.5%, to $795 thousand, or $0.31 per diluted common share, for the three months ended June 30, 2024, compared to $2.9 million, or $1.11 per diluted common share, for the three months ended June 30, 2023. The decrease was the result of a $1.3 million decrease in net interest income, a $729 thousand decrease in noninterest income, a $240 thousand increase in noninterest expense, and a $222 thousand decrease in the release for credit losses, partially offset by a $390 thousand decrease in the provision for income taxes.
Current wording
Q3 2024 vs Q3 2023. Net income decreased $15 thousand, or 1.3%, to $1.2 million, or $0.45 per diluted common share, for the three months ended September 30, 2024, from the three months ended September 30, 2023. The decrease was the result of a $295 thousand decrease in net interest income, offset by a $154 thousand increase in noninterest income, a $31 thousand decrease in noninterest expense, a $67 thousand decrease in the release of credit losses, and a $28 thousand decrease in the provision for income taxes.
Previous wording
YTD 2024 vs. YTD 2023. Net income decreased $3.5 million, or 69.1%, to $1.6 million, or $0.61 per diluted common share, for the six months ended June 30, 2024, compared to $5.1 million, or $1.94 per diluted common share, for the six months ended June 30, 2023. The decrease was primarily a result of a $3.2 million decrease in net interest income, a $179 thousand decrease in the release of credit losses, a $600 thousand decrease in noninterest income and a $282 thousand increase in noninterest expense, partially offset by a $774 thousand decrease in the provision for income taxes.
Current wording
YTD 2024 vs. YTD 2023. Net income decreased $3.5 million, or 56.3%, to $2.7 million, or $1.05 per diluted common share, for the nine months ended September 30, 2024, compared to $6.2 million, or $2.39 per diluted common share, for the nine months ended September 30, 2023. The decrease was primarily a result of a $3.5 million decrease in net interest income, a $112 thousand decrease in the release of credit losses, a $446 thousand decrease in noninterest income and a $252 thousand increase in noninterest expense, partially offset by a $802 thousand decrease in the provision for income taxes.
Previous wording
Q2 2024 vs Q2 2023. Interest income increased $1.6 million, or 13.1%, to $14.0 million for the three months ended June 30, 2024, from $12.4 million for the three months ended June 30, 2023, primarily due to higher average balances of loans and interest-bearing cash, a 21 basis point increase in the average yield on loans, a 68 basis point increase in the average yield on interest-bearing cash, and a 45 basis point increase in the average yield on investments, partially offset by a decline in the average balance of investments.
Current wording
Q3 2024 vs Q3 2023. Interest income increased $2.2 million, or 17.0%, to $14.8 million for the three months ended September 30, 2024, from $12.7 million for the three months ended September 30, 2023, primarily due to higher average balances of loans and interest-bearing cash, a 41 basis point increase in the average yield on loans, a 20 basis point increase in the average yield on interest-bearing cash, and an eight basis point increase in the average yield on investments, partially offset by a decline in the average balance of investments.
Previous wording
Interest income on loans increased $769 thousand, or 6.7%, to $12.3 million for the three months ended June 30, 2024, compared to $11.6 million for the three months ended June 30, 2023. The average balance of total loans was $891.9 million for the three months ended June 30, 2024, compared to $866.0 million for the three months ended June 30, 2023. The average yield on total loans was 5.56% for the three months ended June 30, 2024, compared to 5.35% for the three months ended June 30, 2023. The average yield on total loans increased primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.
Current wording
Interest income on loans increased $1.4 million, or 11.9%, to $12.9 million for the three months ended September 30, 2024, from $11.5 million for the three months ended September 30, 2023. The average balance of total loans was $898.6 million for the three months ended September 30, 2024, compared to $862.4 million for the three months ended September 30, 2023. The average yield on total loans was 5.70% for the three months ended September 30, 2024, compared to 5.29% for the three months ended September 30, 2023. The increase in the average balance resulted primarily from growth in commercial and multifamily loans and floating home loans. The average yield on total loans increased primarily due to variable rate loans resetting to higher market interest rates and new loan originations at higher interest rates.
Previous wording
Interest income on the investment portfolio increased $5 thousand, or 3.9%, to $133 thousand for the three months ended June 30, 2024, compared to $128 thousand for the three months ended June 30, 2023. The increase was due to a higher average yield, partially offset by a decrease in the average balance. The average balance of investments was $13.9 million for the three months ended June 30, 2024, compared to $15.1 million for the three months ended June 30, 2023, while the average yield on investments increased 45 basis points to 3.84% for the three months ended June 30, 2024, compared to 3.39% for the three months ended June 30, 2023.
Current wording
Interest income on the investment portfolio decreased $7 thousand, or 5.0%, to $132 thousand for the three months ended September 30, 2024, compared to $139 thousand for the three months ended September 30, 2023. The decrease was due to a decrease in the average balance, partially offset by a higher average yield. The average balance of investments was $13.8 million for the three months ended September 30, 2024, compared to $14.8 million for the three months ended September 30, 2023, while the average yield on investments increased seven basis points to 3.80% for the three months ended September 30, 2024, compared to 3.73% for the three months ended September 30, 2023.
Previous wording
Interest income on cash and cash equivalents increased $853 thousand, or 116.4% to $1.6 million for the three months ended June 30, 2024, compared to $733 thousand for the three months ended June 30, 2023. The increase was due to a higher average balance of and yield on cash and cash equivalents. The average yield on cash and cash equivalents increased to 5.28% for the three months ended June 30, 2024, compared to 4.60% for the three months ended June 30, 2023, as a result of the higher interest rate environment. The average balance of cash and cash equivalents was $120.8 million for the three months ended June 30, 2024, compared to $63.9 million for the three months ended June 30, 2023. The increase in the average balance was due to higher average cash balances as deposits increased during the period at a faster pace than we were able to increase loans.
Current wording
Interest income on cash and cash equivalents increased $788 thousand, or 75.6% to $1.8 million for the three months ended September 30, 2024, compared to $1.0 million for the three months ended September 30, 2023. The increase was due to a higher average balance of and yield on cash and cash equivalents. The average yield on cash and cash equivalents increased to 5.27% for the three months ended September 30, 2024, compared to 5.07% for the three months ended September 30, 2023, as a result of the higher interest rate environment. The average balance of cash and cash equivalents was $138.2 million for the three months ended September 30, 2024, compared to $81.6 million for the three months ended September 30, 2023. The increase in the average balance was due to higher average cash balances, as deposits increased during the period at a faster pace than we were able to increase loans.
Previous wording
YTD 2024 vs. YTD 2023. Interest income increased $3.2 million, or 13.1%, to $27.8 million for the six months ended June 30, 2024, from $24.6 million for the six months ended June 30, 2023, primarily due to higher average loan balances, and increased yields on loans, investments and cash and cash equivalents of 20 basis point, 36 basis point, and 88 basis point, respectively, partially offset by a lower average balance of investments.
Current wording
YTD 2024 vs. YTD 2023. Interest income increased $5.4 million, or 14.4%, to $42.6 million for the nine months ended September 30, 2024, from $37.3 million for the nine months ended September 30, 2023, primarily due to a higher average balances of loans and interest-bearing cash, and increases in average yields on loans, investments and cash and cash equivalents of 26 basis points, 26 basis points, and 61 basis points, respectively, partially offset by a lower average balance of investments.
Previous wording
Interest income on loans increased $1.6 million, or 7.1%, to $24.6 million for the six months ended June 30, 2024, compared to $22.9 million for the six months ended June 30, 2023, driven by higher average balance of total loans and a 20 basis points increase in the average yield on loans. The average balance of total loans was $893.6 million for the six months ended June 30, 2024, compared to $866.9 million for the six months ended June 30, 2023. The average yield on total loans was 5.53% for the six months ended June 30, 2024, compared to 5.33% for the six months ended June 30, 2023. The average yield on total loans increased primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.
Current wording
Interest income on loans increased $3.0 million, or 8.7%, to $37.4 million for the nine months ended September 30, 2024, compared to $34.4 million for the nine months ended September 30, 2023, driven by a higher average balance of total loans and a 26 basis point increase in the average yield on loans. The average balance of total loans was $895.3 million for the nine months ended September 30, 2024, compared to $865.4 million for the nine months ended September 30, 2023. The average yield on total loans was 5.58% for the nine months ended September 30, 2024, compared to 5.32% for the nine months ended September 30, 2023. The average yield on total loans increased primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates.
Previous wording
Q2 2024 vs Q2 2023. Interest expense increased $2.9 million, or 79.7%, to $6.6 million for the three months ended June 30, 2024, from $3.7 million for the three months ended June 30, 2023. The increase was primarily the result of a $37.7 million increase in the average balance of certificate accounts and a $138.3 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 $61.4 million decrease in the average balance of demand and NOW accounts and a $8.1 million decrease in the average balance of FHLB advances. The 126 basis point increase in the rate paid on certificate accounts and the 196 basis point increase in the rate paid on savings and money market accounts contributed to an overall 122 basis point increase in the average cost of total deposits to 2.67% for the quarter ended June 30, 2024, from 1.45% for the quarter ended June 30, 2023.
Current wording
Q3 2024 vs Q3 2023. Interest expense increased $2.4 million, or 54.2%, to $7.0 million for the three months ended September 30, 2024, from $4.5 million for the three months ended September 30, 2023. The increase was primarily the result of a $9.8 million increase in the average balance of certificate accounts and a $148.1 million increase in the average balance of savings and money market accounts, as well as higher average rates paid on all interest-bearing deposits, partially offset by a $46.3 million decrease in the average balance of demand and NOW accounts and a $2.8 million decrease in the average balance of FHLB advances. The 59 basis point increase in the rate paid on certificate accounts and the 165 basis point increase in the rate paid on savings and money market accounts contributed to an overall 89 basis point increase in the average cost of total deposits to 2.74% for the quarter ended September 30, 2024, from 1.85% for the quarter ended September 30, 2023.
Previous wording
Interest expense on borrowings, comprised solely of FHLB advances, was $429 thousand for the three months ended June 30, 2024, compared to $547 thousand for the three months ended June 30, 2023, primarily due to a 25 basis point decline in the average cost of FHLB advances to 4.31% for the quarter ended June 30, 2024, compared to 4.56% for the same quarter in 2023. The average cost of FHLB advances declined due to no overnight borrowings utilized in the current quarter as compared to utilization of overnight borrowings in 2023. The average balance of FHLB advances was $40.0 million for the three months ended June 30, 2024, compared to $48.1 million for the three months ended June 30, 2023. Interest expense on subordinated notes was $168 thousand for both the three months ended June 30, 2024 and 2023.
Current wording
Interest expense on borrowings, comprised solely of FHLB advances, was $434 thousand for the three months ended September 30, 2024, compared to $473 thousand for the three months ended September 30, 2023, primarily due to a six basis point decline in the average cost of FHLB advances to 4.32% for the quarter ended September 30, 2024, compared to 4.38% for the same quarter in 2023. The average cost of FHLB advances declined due to no overnight borrowings being utilized in the current quarter as compared to utilization of overnight borrowings in the same quarter of 2023. The average balance of FHLB advances was $40.0 million for the three months ended September 30, 2024, compared to $42.8 million for the three months ended September 30, 2023. Interest expense on subordinated notes was $168 thousand for both the three months ended September 30, 2024 and the three months ended September 30, 2023.
Previous wording
YTD 2024 vs. YTD 2023. Interest expense increased $6.4 million, or 99.2%, to $12.9 million for the six months ended June 30, 2024, from $6.5 million for the six months ended June 30, 2023. Interest expense on deposits increased $6.6 million, or 129.9%, to $11.7 million for the six months ended June 30, 2024, compared to $5.1 million for the six months ended June 30, 2023. The increase was primarily the result of an increase in the average balance of savings and money market accounts and certificate accounts, as well as higher average rates paid on all interest-bearing deposits, partially offset by a decrease in the average balance of demand and now accounts. The average cost of total deposits increased 137 basis points to 2.62% for the six months ended June 30, 2024, from 1.25% for the six months ended June 30, 2023.
Current wording
YTD 2024 vs. YTD 2023. Interest expense increased $8.9 million, or 80.7%, to $19.9 million for the nine months ended September 30, 2024, from $11.0 million for the nine months ended September 30, 2023. Interest expense on deposits increased $9.1 million, or 101.4%, to $18.1 million for the nine months ended September 30, 2024, compared to $9.0 million for the nine months ended September 30, 2023. The increase was primarily the result of an increase in the average balance of savings and money market accounts and certificate accounts, as well as higher average rates paid on these accounts, partially offset by a decrease in the average balance of demand and NOW accounts. The average cost of total deposits increased 121 basis points to 2.66% for the nine months ended September 30, 2024, from 1.45% for the nine months ended September 30, 2023.
Previous wording
Interest expense on borrowings, comprised solely of FHLB advances, was $859 thousand for the six months ended June 30, 2024, compared to $1.0 million for the six months ended June 30, 2023, reflecting the decreased use of FHLB advances to supplement our liquidity needs. The average cost of FHLB advances decreased 21 basis points to 4.32% for the six months ended June 30, 2024, compared to 4.53% for the same period in 2023. The averages cost of FHLB advances declined due to no overnight borrowings utilized in 2024 as compared to utilization of overnight borrowings in 2023. The average balance of FHLB advances was $40.0 million for the six months ended June 30, 2024, compared to $46.5 million for the six months ended June 30, 2023. Interest expense on subordinated notes was $336 thousand for both the six months ended June 30, 2024 and 2023.
Current wording
FHLB advances to supplement our liquidity needs. The average cost of FHLB advances decreased 17 basis points to 4.32% for the nine months ended September 30, 2024, compared to 4.49% for the same period in 2023. The average cost of FHLB advances declined due to no overnight borrowings being utilized in the 2024 nine-month period as compared to utilization of overnight borrowings in the 2023 nine-month period. The average balance of FHLB advances was $40.0 million for the nine months ended September 30, 2024, compared to $45.3 million for the nine months ended September 30, 2023. Interest expense on subordinated notes was $504 thousand for both the nine months ended September 30, 2024 and 2023.
Previous wording
Q2 2024 vs Q2 2023. Net interest income decreased $1.3 million, or 14.8%, to $7.4 million for the three months ended June 30, 2024, from $8.7 million for the three months ended June 30, 2023. The decrease in net interest income was primarily the result of increased 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. Net interest margin (annualized) was 2.92% and 3.71% for the three months ended June 30, 2024 and June 30, 2023, respectively. The decrease in net interest margin primarily was due to the cost of funding increasing at a faster pace than the yield earning on interest-earning assets, driven by the higher average balance of higher costing money market and certificate accounts.
Current wording
Q3 2024 vs Q3 2023. Net interest income decreased $295 thousand, or 3.6%, to $7.9 million for the three months ended September 30, 2024, from $8.2 million for the three months ended September 30, 2023. The decrease in net interest income was primarily the result of increased 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. Net interest margin (annualized) was 2.98% and 3.38% for the three months ended September 30, 2024 and 2023, respectively. The decrease in net interest margin primarily was due to the cost of funding increasing at a faster pace than the yield earning on interest-earning assets, driven by the higher average balance of higher costing money market and certificate accounts.
Previous wording
YTD 2024 vs. YTD 2023. Net interest income decreased $3.2 million, or 17.7%, to $14.9 million for the six months ended June 30, 2024, from $18.1 million for the six months ended June 30, 2023. Net interest margin was 2.94% and 3.86% for the six months ended June 30, 2024 and 2023, respectively. The decrease in net interest income primarily resulted from an increase in the average balances of and rate paid on deposits, offset by higher average balances and yield earned on interest-earning assets and lower average balances and rate paid on borrowings . The decrease in net interest margin primarily was due to average interest rates paid on interest-bearing liabilities increasing at a faster pace than the average yields earned on interest-earning assets.
Current wording
YTD 2024 vs. YTD 2023. Net interest income decreased $3.5 million, or 13.3%, to $22.8 million for the nine months ended September 30, 2024, from $26.3 million for the nine months ended September 30, 2023. Net interest margin (annualized) was 2.95% and 3.70% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in net interest income primarily resulted from an increase in the average balances of and rate paid on deposits, partially offset by higher average balances and yield earned on interest-earning assets and lower average balances and rate paid on borrowings. The decrease in net interest margin primarily was due to average interest rates paid on interest-bearing liabilities increasing at a faster pace than the average yields earned on interest-earning assets.
Previous wording
During 2023, in response to inflation, the Federal Open Market Committee of the Federal Reserve increased the target range for the federal funds rate by 100 basis points to a range of 5.25% to 5.50%, where it remained as of June 30, 2024. There have been no federal funds rate increases subsequent to July 2023.
Current wording
During 2023, in response to inflation, the Federal Open Market Committee of the Federal Reserve (“FOMC”) increased the target range for the federal funds rate by 100 basis points to a range of 5.25% to 5.50%, where it remained until September 18, 2024. In light of the progress on reducing inflation and after considering the balance of risks, the FOMC decided to lower the target range 50 basis points to 4.75% to 5.00%.
Previous wording
During the three months ended June 30, 2024, the release of credit losses on loans resulted primarily from the decrease in our loans held-for-portfolio, as well as lower expected loss estimates in the current quarter, while the release of credit losses on unfunded loan commitments related to overall fewer loan commitments. During the six months ended June 30, 2024, the release of credit losses on loans primarily related to lower reserves on our other consumer loan portfolio and residential loan portfolios due to qualitative adjustments for changes in concentration and market conditions, as well as a smaller loan portfolio, partially offset by an increase in nonaccrual loans and the weighted average life of the portfolio. The provision for credit losses on unfunded loan commitments during the current period related to new originations in our construction and land portfolios as of June 30, 2024. Net charge-offs for the three months ended June 30, 2024 totaled $17 thousand, compared to $73 thousand for three months ended June 30, 2023. Net charge-offs for the six months ended June 30, 2024 totaled $73 thousand, compared to net charge-offs of $145 thousand for the six months ended June 30, 2023.
Current wording
During the three months ended September 30, 2024, the provision for credit losses on loans was primarily due to growth in the loan portfolio and higher quantitative loss rates, which were influenced by a forecast of higher unemployment in the current quarter. The current quarter also included enhancements to the loss model, including an additional qualitative adjustment related to loan review. The release of credit losses on unfunded loan commitments related to overall fewer loan commitments. During the nine months ended September 30, 2024, the release of credit losses on loans primarily related to lower reserves on our other consumer loan portfolio and residential loan portfolios due to qualitative adjustments for changes in concentration, the value of underlying collateral, and market conditions, partially offset by growth in the loan portfolio, an increase in nonaccrual loans and the weighted average life of the portfolio, and enhancements to the loss model as noted above. The release of provision for credit losses on unfunded loan commitments during the current nine-month period related to overall fewer loan commitments. Net charge-offs for the three months ended September 30, 2024 totaled $14 thousand, compared to $3 thousand for three months ended September 30, 2023. Net charge-offs for the nine months ended September 30, 2024 totaled $87 thousand, compared to net charge-offs of $148 thousand for the nine months ended September 30, 2023.
Previous wording
While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, and a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on our financial condition and results of operations. In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.
Current wording
While we believe the estimates and assumptions used in our determination of the adequacy of the ACL are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not have a material adverse impact on our financial condition and results of operations. A further decline in national and local economic conditions, as a result of the effects of inflation, and a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL and have a material adverse impact on our financial condition and results of operations. In addition, the determination of the amount of our ACL is subject to review by bank regulators as part of the routine examination process, which may result in the adjustment of reserves based upon their judgment of information available to them at the time of their examination.
Previous wording
Noninterest Income. Noninterest income decreased $729 thousand, or 38.6%, to $1.2 million for the three months ended June 30, 2024, as compared to $1.9 million for the three months ended June 30, 2023, as reflected below (dollars in thousands):
Current wording
Noninterest Income. Noninterest income increased $154 thousand, or 14.2%, to $1.2 million for the three months ended September 30, 2024, as compared to $1.1 million for the three months ended September 30, 2023, as reflected below (dollars in thousands):
Previous wording
The decrease in noninterest income was due to a $584 thousand decrease in earnings on BOLI due to a death benefit received in the second quarter of 2023, a $212 thousand decrease in the fair value adjustment on mortgage servicing rights due to faster prepayment speeds, a $36 thousand decrease in net gain on sale of loans as a result of a lower valuation of servicing rights of newly originated loans and a $18 thousand decrease in mortgage servicing income as a result of the portfolio paying down at a faster speed than new originations, partially offset by a $91 thousand increase in service charges and fee income due to a recovery of potential future lost fee income due to a vendor error and a $30 thousand gain on disposal of assets due to insurance claims on loss of fully depreciated assets. Loans sold during the quarter ended June 30, 2024, totaled $4.0 million, compared to $6.4 million during the quarter ended June 30, 2023.
Current wording
The increase in noninterest income was due to a $98 thousand increase in earnings on BOLI due to market rate fluctuations, and an $179 thousand increase in the fair value adjustment on mortgage servicing rights due to changes in prepayment speeds, servicing costs, and discount rate. These increases were partially offset by a $72 thousand decrease in service charges and fee income, primarily due to a volume incentive paid by Mastercard in the quarter ended September 30, 2023, a $36 thousand decrease in net gain on sale of loans resulting from lower mortgage activity, and a decrease in mortgage servicing income as a result of the portfolio paying down at a faster rate than we are replacing the loans. Additionally, mortgage servicing income decreased by $15 thousand compared to the third quarter of 2023. Loans sold during the quarter ended September 30, 2024, totaled $2.4 million, compared to $4.4 million during the quarter ended September 30, 2023.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Interest expense on borrowings, comprised solely of FHLB advances, was $1.3 million for the nine months ended September 30, 2024, compared to $1.5 million for the nine months ended September 30, 2023, reflecting the decreased use of
Current report — wording carried from elsewhere
Company’s 2023 Form 10-K. At September 30, 2024 Sound Financial Bancorp, on an unconsolidated basis, had $1.3 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.