Document

Net interest income increased $541,000, or 8.1%, to $7.2 million during the quarter ended December 31, 2020, compared to $6.7 million during the quarter ended September 30, 2020 and increased $96,000, or 1.4%, from $7.1 million during the quarter ended December 31, 2019. The increase from the prior quarter was primarily a result of higher interest income on loans. The increase from the same quarter one year ago was primarily a result of lower interest expense, partially offset by lower interest income.

Interest income increased $566,000, or 6.7%, to $9.1 million during the quarter ended December 31, 2020, compared to $8.5 million during the quarter ended September 30, 2020 and decreased $56,000, or 0.6%, from $9.1 million during the quarter ended December 31, 2019. The increase from the prior quarter was due to higher loan yields. The decrease from the prior year was due to lower interest income on investments, partially offset by higher interest income on higher average loan balances resulting primarily from loans made by the Bank through its participation in the U.S. Small Business Administration’s (“SBA”) Payment Protection Program ("PPP"). Interest income on loans increased $555,000, or 6.6%, to $9.0 million for the quarter ended December 31, 2020, compared to $8.4 million for the quarter ended September 30, 2020, and increased $118,000, or 1.3%, from $8.9 million for the quarter ended December 31, 2019. The average balance of loans held-for-portfolio was $654.6 million for the quarter ended December 31, 2020, compared to $694.1 million for the quarter ended September 30, 2020 and $623.1 million for the quarter ended December 31, 2019. The average yield on loans held-for-portfolio was 5.36% for the quarter ended December 31, 2020, compared to 4.82% for the quarter ended September 30, 2020 and 5.63% for the quarter ended December 31, 2019. The increase in loan yield in the fourth quarter compared to the previous quarter was primarily due to the recognition of deferred fees on repayments of PPP loans from SBA loan forgiveness. Interest income on the investment portfolio increased $11,000, or 12.8%, to $97,000 during the quarter ended December 31, 2020, compared to $86,000 during the quarter ended September 30, 2020, and decreased $174,000, or 64.2%, from $271,000 during the quarter ended December 31, 2019. The decrease in the interest income on investment securities compared to the same quarter one year ago was due to lower average yields. The average yield on investments was 0.24% for the quarter ended December 31, 2020, compared to 0.29% for the quarter ended September 30, 2020 and 1.80% for the quarter ended December 31, 2019.

Interest expense increased $25,000, or 1.4%, to $1.9 million for the quarter ended December 31, 2020, compared to $1.8 million for the quarter ended September 30, 2020 and decreased $152,000, or 7.5%, from $2.0 million for the quarter ended December 31, 2019. The increase from the prior quarter was primarily the result of a full quarter of interest expense on subordinated debt issued during the third quarter of 2020, partially offset by a decrease in the weighted average balance of deposits and borrowings, consisting of Federal Home Loan Bank (FHLB) advances, outstanding for the quarter ended December 31, 2020. The weighted average cost of borrowings outstanding, excluding subordinated debt, was $5.8 million for the quarter ended December 31, 2020, compared to $40.5 million for the quarter ended September 30, 2020 primarily due to repayment in the third quarter of Paycheck Protection Program Liquidity Facility borrowings incurred in the second quarter and to repayment of outstanding FHLB advances in the fourth quarter. The decrease from the comparable period a year ago was primarily the result of a higher percentage of noninterest bearing deposits to total deposits and a lower weighted average cost of FHLB advances, partially offset by the interest expense on subordinated debt. The prior year The weighted average cost of deposits decreased to 0.92% for the quarter ended December 31, 2020, down four basis points from 0.96% for the quarter ended September 30, 2020, and down 32 basis points from 1.24% for the quarter ended December 31, 2019. The weighted average cost of borrowings increased to 4.89% for the quarter ended December 31, 2020, from 1.04% for the quarter ended September 30, 2020, and from 2.69% for the quarter ended December 31, 2019.

During the quarter, forgiveness by the SBA of some PPP loans on our books and recognition of deferred fees on the associated forgiven loans positively impacted net interest margin. Net interest margin (annualized) was 3.46% for the quarter ended December 31, 2020, compared to 3.26% for the quarter ended September 30, 2020 and 4.11% for the quarter ended December 31, 2019. The increase from the prior quarter-end was due to yields earned on interest-earning assets, specifically PPP loans forgiven. During the quarter, $31.5 million of PPP loans were repaid and forgiven by the SBA. The decrease from a year ago period was due to yields earned on interest-earning assets declining at a faster rate than interest rates paid on interest-bearing liabilities as changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rate. The average yield earned on PPP loans, including the recognition of the net deferred fees for PPP loans repaid and forgiven by the SBA, resulted in a positive impact to the net interest margin of four basis points during the quarter ended December 31, 2020, compared to a negative impact of four basis points during the quarter ended September 30, 2020.

quarter ended December 31, 2019. The decrease in the provision for loan losses in the current quarter compared to the prior quarter was primarily due to decreases in the balance of the loans held-for-portfolio and to a lesser extent the decrease in non-performing loans. Our allowance for loan losses as of December 31, 2020 not only reflects probable credit losses based upon the conditions that existed as of December 31, 2020, but also gives consideration to the potential losses from impacts of the COVID-19 pandemic.

Noninterest income increased $1.0 million, or 49.4%, to $3.1 million for the quarter ended December 31, 2020, compared to $2.1 million for the quarter ended September 30, 2020 and increased $2.2 million, or 260.1%, from $858,000 for the quarter ended December 31, 2019. The increase from the sequential quarter and the same period a year ago was primarily due to an increase in gain on sale of loans. Loans sold during the quarter ended December 31, 2020, totaled $91.4 million, compared to $89.2 million and $19.5 million during the quarters ended September 30, 2020 and December 31, 2019, respectively. As a result of reductions in market interest rates which increased refinance activity, the volume of loans originated for sale grew significantly during the third and fourth quarters of 2020.

Noninterest expense increased $266,000, or 4.8%, to $5.8 million for the quarter ended December 31, 2020, compared to $5.5 million for the quarter ended September 30, 2020 and increased $157,000, or 2.8%, from $5.6 million for the quarter ended December 31, 2019. The increase from the quarter ended September 30, 2020 was primarily a result of an increase in salaries and benefits expense of $271,000 due to increased production for loans originated and sold to the secondary market. The increase in noninterest expense compared to the quarter ended December 31, 2019 was primarily due to increases in data processing of $178,000 and salaries and benefits of $117,000, partially offset by decreases in operations expense of $71,000 and occupancy expense of $56,000. Data processing expense increased due to technology investments and variable costs associated with loan origination system activity.

Assets at December 31, 2020 totaled $861.4 million, compared to $867.4 million at September 30, 2020 and $719.9 million at December 31, 2019. The decrease in assets from the sequential quarter was primarily due to lower balances of loans held-for-portfolio and held-for-sale, offset by an increase in cash and cash equivalents. The increase from a year ago was primarily a result of higher balances in cash and cash equivalents and loans held-for-sale.

Cash and cash equivalents increased $78.1 million, or 67.4%, to $193.8 million at December 31, 2020, compared to $115.8 million at September 30, 2020, and increased $138.1 million, or 247.5%, from $55.8 million at December 31, 2019. The increase from the prior quarter-end was due to pay downs in commercial and residential loans, including the forgiveness by the SBA of $31.5 million of commercial PPP loans during the quarter. The increase from a year ago was due to deposit growth and the issuance of $12 million in subordinated debt during the third quarter of 2020.

Loans held-for-portfolio decreased to $613.4 million at December 31, 2020, compared to $689.4 million at September 30, 2020 and $619.9 million at December 31, 2019. The largest decreases in the loan portfolio compared to the prior quarter were in commercial business, commercial and multifamily, one-to-four family, and construction and land loan portfolios. At December 31, 2020, compared to the prior quarter, commercial business loans decreased $46.8 million, or 42.2%, to $64.2 million primarily driven by PPP loan forgiveness by the SBA, commercial and multifamily decreased $10.1 million, or 3.7%, to $265.7 million, one-to-four family decreased $9.7 million, or 6.9%, to $130.7 million, and construction and land decreased $9.4 million, or 13.0%, to $62.8 million. At December 31, 2020, compared to the comparable quarter in 2019, commercial business loans increased $25.3 million, or 65.0%, to $64.2 million, primarily driven by our origination of PPP loans, and other consumer loans increased $6.7 million, or 81.0%, to $15.0 million. These increases were partially offset by decreases in one-to-four family loans, which decreased $18.7 million, or 12.5%, to $130.7 million, construction and land, which decreased $13.0 million, or 17.2%, to $62.8 million, home equity loans, which decreased $7.6 million, or 31.8%, to $16.3 million and floating homes, which decreased $3.9 million, or 9.0%, to $39.9 million. At December 31, 2020, commercial and multifamily real estate loans accounted for approximately 43.2% of total loans, one-to-four family loans, including home equity loans accounted for approximately 23.9% of total loans, and commercial business loans accounted for approximately 10.4% of total loans. Consumer loans accounted for approximately 12.3% of total loans and construction and land loans accounted for approximately 10.2% of total loans and loans at December 31, 2020.

No PPP loans were originated during the current quarter as the initial program has expired. Recent legislation reopened the PPP through March 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits. In January, the Bank began accepting and processing loan applications under this second PPP program and will continue working with clients to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate.

Nonperforming assets ("NPAs"), which are comprised of nonaccrual loans, nonperforming troubled debt restructurings ("TDRs"), other real estate owned ("OREO") and other repossessed assets decreased $413,000, or 10.6%, to $3.5 million at December 31, 2020, from $3.9 million at September 30, 2020 and decreased $1.8 million, or 33.5% from $5.2 million at December 31, 2019. NPAs to total assets were 0.40%, 0.45% and 0.73% at December 31, 2020, September 30, 2020 and December 31, 2019, respectively. The allowance for loan losses totaled $6.0 million, or 0.98% of total loans outstanding, at December 31, 2020 compared to $6.0 million, or 0.87% of total loans outstanding, at September 30, 2020 and $5.6 million, or 0.91% of total loans outstanding, at December 31, 2019. Excluding PPP loans of $43.3 million which are 100% guaranteed by the SBA, the allowance for loan losses totaled 1.05% of total loans outstanding at December 31, 2020, compared to 0.97% of total loans outstanding at September 30, 2020, excluding PPP loans of $74.8 million (See Non-GAAP reconciliation on page 14). Net loan recoveries during the fourth quarter of 2020 totaled $12,000 compared to net charge-offs of $318,000 for the third quarter 2020 and net charge-offs of $3,000 for the fourth quarter of 2019.

granted and if a downgrade in risk rating is appropriate. As of December 31, 2020, we have provided payment relief related to COVID-19 on 49 commercial loans totaling $37.2 million and 84 residential loans totaling $19.0 million, of which 40 commercial loans totaling $29.1 million and 55 residential loans totaling $14.6 have resumed their normal loan payments, matured, or have paid-off. The $4.4 million of residential loans that are still under payment relief at December 31, 2020, include eight residential loans totaling $907,000 that have entered into a second payment forbearance agreement with a weighted average loan-to-value of 66%, 10 residential loans totaling $2.0 million that have entered into a third payment forbearance agreement with a weighted average loan-to value of 57%, and three residential loans totaling $525,000 that have entered into a fourth forbearance agreement with a weighted average loan-to-value of 65%. The $8.1 million in commercial loans that are still under payment relief at December 31, 2020, include three commercial loans totaling $1.7 million that have entered into a second interest-only payment agreement with a weighted average loan-to-value of 65%, and one commercial loan totaling $2.4 million that has entered into a third interest-only payment agreement with a loan-to-value of 47%. All of these loan modifications have been made in response to the COVID-19 pandemic and are not classified as troubled debt restructurings pursuant to applicable accounting and regulatory guidance until the earlier of 60 days after the national emergency termination date or January 1, 2022. We believe the steps we are taking are necessary to effectively manage our portfolio and assist our clients through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.


	December 31, 2020				September 30, 2020				December 31, 2019
	Balance		% of Total		Balance		% of Total		Balance		% of Total
Nonperforming Loans:
One-to-four family	$	1,668	48.0	%	$	1,602	41.2	%	$	2,090	40.0	%
Home equity loans	156		4.5		146		3.7		261		5.0
Commercial and multifamily	353		10.1		353		9.1		353		6.7
Construction and land	40		1.2		555		14.3		1,177		22.5
Manufactured homes	149		4.3		131		3.3		226		4.3
Floating homes	518		14.9		529		13.6		290		5.5

Other consumer	—		—		—		—		260		5.0
Total nonperforming loans	2,884		83.0		3,316		85.2		4,657		89.0
OREO and Other Repossessed Assets:
One-to-four family	—		—		—		—		—		—
Commercial and multifamily	575		16.5		575		14.8		575		11.0
Manufactured homes	19		0.5		—		—		—		—
Total OREO and repossessed assets	594		17.0		575		14.8		575		11.0
Total nonperforming assets	$	3,478	100.0	%	$	3,891	100.0	%	$	5,232	100	%


	For the Quarter Ended:
	December 31, 2020			September 30, 2020			December 31, 2019
Allowance for Loan Losses
Balance at beginning of period	$	5,988		$	6,031		$	5,618
Provision for loan losses during the period	—			275			25
Net recoveries (charge-offs) during the period	12			(318)			(3)
Balance at end of period	$	6,000		$	5,988		$	5,640
Allowance for loan losses to total loans	0.98		%	0.87		%	0.91		%
Allowance for loan losses to total loans (excluding PPP loans) (1)	1.05		%	0.97		%	0.91		%
Allowance for loan losses to total nonperforming loans	208.04		%	180.58		%	121.11		%

Deposits decreased $869,000, or 0.1%, to $748.0 million at December 31, 2020, compared to $748.9 million at September 30, 2020 and increased $131.3 million, or 21.3%, from $616.7 million at December 31, 2019. The increase in deposits compared to the year ago quarter was primarily the result of developing relationships with PPP borrowers who were not previously clients, adding new consumer clients, and expanding relationships with existing clients. Noninterest bearing deposits represented 17.7% of total deposits at December 31, 2020, compared to 20.3% and 15.5% at September 30, 2020 and December 31, 2019, respectively. Our noninterest bearing deposits decreased $19.7 million, or 13.0% to $132.5 million at December 31, 2020, compared to $152.2 million at September 30, 2020 and increased $35.2 million or 36.2% from $97.3 million at December 31, 2019.

Stockholders’ equity totaled $85.5 million at December 31, 2020, an increase of $3.2 million or 3.8% from $82.3 million at September 30, 2020 and an increase of $7.8 million or 10.0% from $77.7 million at December 31, 2019. The increase in stockholders’ equity from September 30, 2020 was the result of net income earned of $3.5 million in the fourth quarter, partially offset by the repurchase of $73,000 of Company common stock and the payment of $389,000 in dividends to Company stockholders during the current quarter. The increase in stockholders’ equity from December 31, 2019 was the result of net income of $8.9 million in 2020, partially offset by cash dividends of $2.1 million paid to shareholders and $73,000 in stock repurchases.

Sound Financial Bancorp, Inc., a bank holding company, is the parent company of Sound Community Bank, and is headquartered in Seattle, Washington with full-service branches in Seattle, Tacoma, Mountlake Terrace, Sequim, Port Angeles, Port Ludlow and University Place. 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, Washington. For more information, please visit www.soundcb.com.

When used in filings by Sound Financial Bancorp, Inc. (the "Company") with the Securities and Exchange Commission (the "SEC"), in the Company's press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events, and may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated below or because of other important factors that we cannot foresee that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.

Factors which could cause actual results to differ materially, include, but are not limited to: the effect of the COVID-19 pandemic, including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; legislative changes; changes in policies by regulatory agencies; fluctuations in interest rates; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; the Company's ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company's market area; secondary market conditions for loans; results of examinations of the Company or its wholly owned bank subsidiary by their regulators; competition; changes in management's business strategies; changes in the regulatory and tax environments in which the Company operates; and other factors described in the Company's latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – which are available at www.soundcb.com and on the SEC's website at www.sec.gov.


	At or For the Quarter Ended
	Dec. 31, 2020		Sept. 30, 2020		Dec. 31, 2019		Sequential Quarter % Change		Year over Year % Change
Basic earnings per share	$	1.35	$	0.90	$	0.74	50.0	%	82.4	%
Diluted earnings per share	1.34		0.90		0.72		48.9		86.1
Weighted-average basic shares outstanding	2,566		2,563		2,533		0.1		1.3
Weighted-average diluted shares outstanding	2,597		2,589		2,590		0.3		0.3
Common shares outstanding at period-end	2,593		2,595		2,567		(0.1)		1.0
Book value per share	$	32.97	$	31.72	$	30.27	3.9	%	8.9	%


	For the Quarter Ended
	Dec. 31, 2020		Sept. 30, 2020		Dec. 31, 2019		Sequential Quarter % Change		Year over Year % Change
Interest income	$	9,074	$	8,508	$	9,130	6.7	%	(0.6)	%
Interest expense	1,873		1,848		2,025		1.4		(7.5)
Net interest income	7,201		6,660		7,105		8.1		1.4
Provision for loan losses	—		275		25		(100.0)		(100.0)
Net interest income after provision for loan losses	7,201		6,385		7,080		12.8		1.7
Noninterest income:
Service charges and fee income	472		510		517		(7.5)		(8.7)
Earnings on cash surrender value of bank-owned life insurance	141		102		113		38.2		24.8
Mortgage servicing income	288		260		246		10.8		17.1
Fair value adjustment on mortgage servicing rights	(434)		(623)		(184)		(30.3)		135.9
Net gain on sale of loans	2,623		1,819		166		44.2		1,480.1

Total noninterest income	3,090		2,068		858		49.4		260.1
Noninterest expense:
Salaries and benefits	3,151		2,880		3,034		9.4		3.9
Operations	1,352		1,390		1,423		(2.7)		(5.0)
Regulatory assessments	109		111		101		(1.8)		7.9
Occupancy	444		442		500		0.5		(11.2)
Data processing	735		707		557		4.0		32.0
Net loss and expenses on OREO and repossessed assets	5		—		24		nm		(79.2)
Total noninterest expense	5,796		5,530		5,639		4.8		2.8
Income before provision for income taxes	4,495		2,923		2,299		53.8		95.5
Provision for income taxes	1,001		588		429		70.2		133.3
Net income	$	3,494	$	2,335	$	1,870	49.6	%	86.8	%


	Twelve Months Ended
	Dec. 31, 2020		Dec. 31, 2019		Year over Year % Change
Interest income	$	34,936	$	34,581	1.0	%
Interest expense	7,450		7,617		(2.2)
Net interest income	27,486		26,964		1.9
Provision (recapture) for loan losses	925		(125)		840.0
Net interest income after provision (recapture) for loan losses	26,561		27,089		(1.9)
Noninterest income:
Service charges and fee income	1,905		1,954		(2.5)
Earnings on cash surrender value of bank-owned life insurance	348		381		(8.7)
Mortgage servicing income	1,027		1,002		2.5
Fair value adjustment on mortgage servicing rights	(1,857)		(760)		(144.3)
Net gain on sale of loans	6,022		1,449		315.6

Total noninterest income	7,445		4,026		84.9
Noninterest expense:
Salaries and benefits	12,083		12,402		(2.6)
Operations	5,461		5,905		(7.5)
Regulatory assessments	590		279		111.5
Occupancy	1,881		2,060		(8.7)
Data processing	2,658		2,104		26.3
Net loss and expenses on OREO and repossessed assets	5		35		(85.7)
Total noninterest expense	22,678		22,785		(0.5)
Income before provision for income taxes	11,328		8,330		36.0
Provision for income taxes	2,391		1,651		44.8
Net income	$	8,937	$	6,679	33.8	%


	Dec. 31, 2020		Sept. 30, 2020		Dec. 31, 2019		Sequential Quarter % Change		Year over Year % Change
ASSETS
Cash and cash equivalents	$	193,828	$	115,762	$	55,770	67.4	%	247.5	%
Available-for-sale securities, at fair value	10,218		13,296		9,306		(23.1)		9.8
Loans held-for-sale	11,604		16,063		1,063		(27.8)		991.6
Loans held-for-portfolio	613,363		689,434		619,887		(11.0)		(1.1)
Allowance for loan losses	(6,000)		(5,988)		(5,640)		0.2		6.4
Total loans held-for-portfolio, net	607,363		683,446		614,247		(11.1)		(1.1)
Accrued interest receivable	2,254		2,536		2,206		(11.1)		2.2
Bank-owned life insurance, net	14,588		14,404		14,183		1.3		2.9
Other real estate owned ("OREO") and other repossessed assets, net	594		575		575		3.3		3.3
Mortgage servicing rights, at fair value	3,780		3,339		3,239		13.2		16.7
Federal Home Loan Bank ("FHLB") stock, at cost	877		1,164		1,160		(24.7)		(24.4)
Premises and equipment, net	6,270		6,466		6,767		(3.0)		(7.3)
Right-of-use assets	6,722		6,945		7,641		(3.2)		(12.0)
Other assets	3,304		3,382		3,696		(2.3)		(10.6)
TOTAL ASSETS	$	861,402	$	867,378	$	719,853	(0.7)		19.7
LIABILITIES
Interest-bearing deposits	$	615,491	$	596,613	$	519,434	3.2		18.5
Noninterest-bearing deposits	132,490		152,237		97,284		(13.0)		36.2
Total deposits	747,981		748,850		616,718		(0.1)		21.3
Borrowings	—		7,500		7,500		(100.0)		(100.0)
Accrued interest payable	369		213		226		73.2		63.3
Lease liabilities	7,134		7,348		8,010		(2.9)		(10.9)
Other liabilities	7,674		7,783		8,368		(1.4)		(8.3)
Advance payments from borrowers for taxes and insurance	1,168		1,678		1,305		(30.4)		(10.5)
Subordinated debt, net	11,592		11,676		—		(0.7)		nm
TOTAL LIABILITIES	775,918		785,048		642,127		(1.2)		20.8
STOCKHOLDERS' EQUITY:
Common stock	25		25		25		—		—
Additional paid-in capital	27,106		27,018		26,343		0.3		2.9
Unearned shares – Employee Stock Ownership Plan ("ESOP")	(113)		(142)		(227)		(20.4)		(50.2)
Retained earnings	58,226		55,170		51,410		5.5		13.3
Accumulated other comprehensive income, net of tax	240		259		175		(7.3)		37.1
TOTAL STOCKHOLDERS' EQUITY	85,484		82,330		77,726		3.8		10.0
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	861,402	$	867,378	$	719,853	(0.7)	%	19.7	%


	Dec. 31, 2020		Sept. 30, 2020		Dec. 31, 2019		Sequential Quarter % Change		Year over Year % Change
Real estate loans:
One-to-four family	$	130,657	$	140,356	$	149,393	(6.9)	%	(12.5)	%
Home equity	16,265		17,727		23,845		(8.2)		(31.8)
Commercial and multifamily	265,747		275,876		261,268		(3.7)		1.7
Construction and land	62,752		72,166		75,756		(13.0)		(17.2)
Total real estate loans	475,421		506,125		510,262		(6.1)		(6.8)
Consumer Loans:
Manufactured homes	20,941		20,947		20,613		—		1.6
Floating homes	39,868		42,399		43,799		(6.0)		(9.0)
Other consumer	15,024		12,252		8,302		22.6		81.0
Total consumer loans	75,833		75,598		72,714		0.3		4.3
Commercial business loans	64,217		111,025		38,931		(42.2)		65.0
Total loans	615,471		692,748		621,907		(11.2)		(1.0)
Less:
Deferred fees, net	(2,108)		(3,314)		(2,020)		(36.4)		4.4
Allowance for loan losses	(6,000)		(5,988)		(5,640)		0.2		6.4
Total loans held for portfolio, net	$	607,363	$	683,446	$	614,247	(11.1)	%	(1.1)	%


	At or For the Quarter Ended
	Dec. 31, 2020			Sept. 30, 2020			Dec. 31, 2019			Sequential Quarter % Change		Year over Year % Change
Nonaccrual loans	$	2,710		$	2,965		$	4,069		(8.6)	%	(33.4)	%
Nonperforming TDRs	174			351			588			(50.4)		(70.4)
Total nonperforming loans	2,884			3,316			4,657			(13.0)		(38.1)
OREO and other repossessed assets	594			575			575			3.3		3.3
Total nonperforming assets	$	3,478		$	3,891		$	5,232		(10.6)		(33.5)

Net recoveries /(charge-offs) during the quarter	12			(318)			(3)			nm		nm
Provision for loan losses during the quarter	—			275			25			nm		nm
Allowance for loan losses	6,000			5,988			5,640			0.2		6.4
Allowance for loan losses to total loans	0.98		%	0.87		%	0.91		%	12.6		7.7
Allowance for loan losses to total nonperforming loans	208.04		%	180.58		%	121.11		%	15.2		71.8
Nonperforming loans to total loans	0.47		%	0.48		%	0.75		%	(2.1)		(37.3)
Nonperforming assets to total assets	0.40		%	0.45		%	0.73		%	(11.1)	%	(45.2)	%


	At or For the Quarter Ended
	Dec. 31, 2020			Sept. 30, 2020			Dec. 31, 2019			Sequential Quarter % Change		Year over Year % Change
Sound Community Bank:
Total loans to total deposits	83.55		%	94.21		%	100.69		%	(11.3)	%	(17.0)	%
Noninterest-bearing deposits to total deposits	17.71		%	20.33		%	15.45		%	(12.9)	%	14.6	%
Sound Financial Bancorp, Inc.:
Average total assets for the quarter	$	864,045		$856,186			$	725,693		0.9	%	19.1	%
Average total equity for the quarter	$	84,781		$	81,994		$	77,427		3.4	%	9.5	%

We have presented a non-GAAP financial measure in addition to results presented in accordance with GAAP for the allowance for loan losses to total loans excluding PPP loans. We have presented this non-GAAP financial measure because management believes this non-GAAP measure better reflects the level of the Company’s allowance available to cover expected loan losses. The Company has recorded no allowance for PPP loans because these loans are guaranteed by the SBA. The non-GAAP financial measure has inherent limitations and is not required to be uniformly applied. Further, this non-GAAP financial measure should not be considered in isolation or as a substitute for the allowance for loan losses to total loans determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other financial institutions. Reconciliation of the GAAP and non-GAAP financial measurement is presented in the table below.


	For the Quarter Ended
	Dec. 31, 2020		Sept. 30, 2020		Dec. 31, 2019		Sequential Quarter % Change		Year over Year % Change
Annualized return on average assets	1.60	%	1.08	%	1.02	%	48.1	%	56.9	%
Annualized return on average equity	16.35		11.33		9.58		44.3		70.7
Annualized net interest margin	3.46		3.26		4.11		6.1		(15.8)
Annualized efficiency ratio	56.32	%	63.36	%	70.82	%	(11.1)	%	(20.5)	%


Media:						Financial:
Laurie Stewart						Daphne Kelley
President/CEO						EVP/CFO
(206) 448-0884 x306						(206) 448-0884 x305


	At or For the Quarter Ended:
	Dec. 31, 2020			Sept. 30, 2020			Dec. 31, 2019
Allowance for loan losses	$	(6,000)		$	(5,988)		$	(5,640)
Total loans	613,363			689,434			619,887
Less: PPP loans	43,270			74,783			—
Total loans, net of PPP loans	$	570,093		$	614,651		$	619,887
Allowance for loan losses to total loans (GAAP)	0.98		%	0.87		%	0.91		%
Allowance for loan losses to total loans, excluding PPP loans	1.05		%	0.97		%	0.91%