Sound Financial Bancorp, Inc. Q4 2022 Results

Rhea-AI Summary

Sound Financial Bancorp (SFBC) reported a net income of $2.9 million for Q4 2022, equating to $1.12 diluted EPS, up from $2.5 million or $0.97 EPS in Q3 2022. Total assets decreased by 0.6% to $976.4 million, while loans held-for-portfolio rose 1.7% to $866.0 million, marking a 26.2% increase year-over-year. Total deposits fell 0.8% to $808.8 million. The Board declared a cash dividend of $0.17 per share, payable on February 23, 2023. Despite rising interest rates, loan growth continued for the eighth straight quarter. Nonperforming loans rose 19.0% to $3.0 million but decreased 46.7% from a year ago.

Positive

• Net income for Q4 2022 increased $0.4 million compared to Q3 2022.
• Record eighth consecutive quarter of loan growth.
• Stockholders' equity rose 2.9% to $97.7 million from Q3 2022.

Negative

• Total assets decreased 0.6% or $5.9 million over the quarter.
• Total deposits dropped $6.6 million or 0.8% from Q3 2022.
• Nonperforming loans increased 19.0% to $3.0 million from Q3 2022.

SEATTLE, Jan. 27, 2023 (GLOBE NEWSWIRE) -- Sound Financial Bancorp, Inc. (Nasdaq: SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $2.9 million for the quarter ended December 31, 2022, or $1.12 diluted earnings per share, as compared to net income of $2.5 million, or $0.97 diluted earnings per share, for the quarter ended September 30, 2022, and $1.9 million, or $0.70 diluted earnings per share, for the quarter ended December 31, 2021. The Company also announced today that its Board of Directors declared a cash dividend on Company common stock of $0.17 per share, payable on February 23, 2023 to stockholders of record as of the close of business on February 9, 2023.

Comments from the President and Chief Executive Officer

“Despite the continual increase in interest rates, and significant economic uncertainty, we sustained our loan origination efforts and posted our eighth consecutive quarter of loan growth,” remarked Ms. Stewart, President and Chief Executive Officer. "Organic funding via deposits remains very competitive but we continue our emphasis on the development of full relationships and generation of business and consumer deposits," concluded Stewart.

Q4 2022 Financial Performance
Total assets decreased $5.9 million or 0.6% to $976.4 million at December 31, 2022, from $982.2 million at September 30, 2022, and increased $56.7 million or 6.2% from $919.7 million at December 31, 2021. Loans held-for-portfolio increased $14.5 million or 1.7% to $866.0 million at December 31, 2022, compared to $851.4 million at September 30, 2022, and increased $179.6 million or 26.2% from $686.4 million at December 31, 2021. Total deposits decreased $6.6 million or 0.8% to $808.8 million at December 31, 2022, from $815.4 million at September 30, 2022, and increased $10.4 million or 1.3% from $798.3 million at December 31, 2021. Noninterest-bearing deposits decreased $19.1 million or 9.9% to $173.2 million at December 31, 2022 compared to $192.3 million at September 30, 2022, and decreased $17.3 million or 9.1% compared to $190.5 million at December 31, 2021. Our loan-to-deposit ratio was 107% at December 31, 2022, compared to 105% at September 30, 2022 and 86% at December 31, 2021. Total nonperforming loans increased $473 thousand or 19.0% to $3.0 million at December 31, 2022, from $2.5 million at September 30, 2022, and decreased $2.6 million or 46.7% from $5.6 million at December 31, 2021.			Net interest income increased $91 thousand or 0.9% to $9.7 million for the quarter ended December 31, 2022, from $9.6 million for the quarter ended September 30, 2022, and increased $2.0 million or 25.6% from $7.7 million for the quarter ended December 31, 2021. Net interest margin ("NIM"), annualized, was 4.05% for the quarter ended December 31, 2022, compared to 4.13% for the quarter ended September 30, 2022 and 3.53% for the quarter ended December 31, 2021.   A $125 thousand provision for loan losses was recorded for the quarter ended December 31, 2022, compared to a $375 thousand provision for loan losses for the quarter ended September 30, 2022 and no provision for loan losses for the quarter ended December 31, 2021. At December 31, 2022, the allowance for loan losses to total nonperforming loans and to total loans was 256.84% and 0.88%, respectively.   Net gain on sale of loans was $49 thousand for the quarter ended December 31, 2022, compared to $48 thousand for the quarter ended September 30, 2022 and $507 thousand for the quarter ended December 31, 2021.   The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at December 31, 2022.

Operating Results

Net interest income increased $91 thousand, or 0.9%, to $9.7 million for the quarter ended December 31, 2022, compared to $9.6 million for the quarter ended September 30, 2022, and increased $2.0 million, or 25.6%, from $7.7 million for the quarter ended December 31, 2021. The increase in the current quarter, compared to the prior quarter and the fourth quarter of 2021 were primarily the result of a higher average balance of and yield earned on average interest-earning assets, partially offset by a higher average balance of and rate paid on average interest-bearing liabilities.

Interest income increased $1.0 million, or 9.7%, to $11.8 million for the quarter ended December 31, 2022, compared to $10.8 million for the quarter ended September 30, 2022, and increased $3.5 million, or 41.4%, from $8.4 million for the quarter ended December 31, 2021. The increase from the prior quarter was primarily due to higher average loan balances, an 18 basis point rate increase in the average yield on loans and a 131 basis point rate increase in the average yield on investments and interest-bearing cash following increases in the targeted federal funds rate throughout 2022, partially offset by lower average balances of investments and interest-bearing cash. The increase in interest income from the same quarter last year was due primarily to higher average loan balances, a 37 basis point increase in the average loan yield and a 305 basis point increase in average yield on investments and interest-bearing cash, partially offset by a lower average balance of investments and interest-bearing cash.

Interest income on loans increased $751 thousand, or 7.3%, to $11.1 million for the quarter ended December 31, 2022, compared to $10.3 million for the quarter ended September 30, 2022, and increased $2.8 million, or 34.5%, from $8.2 million for the quarter ended December 31, 2021. The average balance of total loans was $861.4 million for the quarter ended December 31, 2022, compared to $833.2 million for the quarter ended September 30, 2022 and $690.7 million for the quarter ended December 31, 2021. The average yield on total loans was 5.10% for the quarter ended December 31, 2022, compared to 4.92% for the quarter ended September 30, 2022 and 4.73% for the quarter ended December 31, 2021. The increase in the average loan yield during the current quarter compared to the prior quarter and fourth quarter of 2021 was primarily due to variable rate loans adjusting to higher market interest rates and new loan originations at higher interest rates. Interest income on investments and interest-bearing cash increased $292 thousand to $741 thousand for the quarter ended December 31, 2022, compared to $449 thousand for the quarter ended September 30, 2022, and increased $620 thousand from $121 thousand for the quarter ended December 31, 2021, due to a higher average yield on investments and interest-bearing cash, partially offset by a lower average balance as excess cash liquidity was deployed into higher yielding loans during the current quarter.

Interest expense increased $952 thousand, or 80.7%, to $2.1 million for the quarter ended December 31, 2022, from $1.2 million for the quarter ended September 30, 2022, and increased $1.5 million, or 231.4%, from $643 thousand for the quarter ended December 31, 2021. The increase in interest expense during the current quarter from the prior quarter was primarily the result of a $12.9 million increase in the average balance of borrowings, comprised of Federal Home Loan Bank ("FHLB") advances, and a $55.7 million increase in the average balance of certificate accounts, as well as higher average rates paid on all interest-bearing deposits, partially offset by a $36.9 million decrease in the average balance of interest-bearing deposits other than certificate accounts. The increase in interest expense during the current quarter from the comparable period a year ago was primarily the result of a $59.3 million increase in the average balance of borrowings and a $75.3 million increase in the average balance of certificate accounts, as well as higher average rates paid on all interest-bearing deposits, partially offset by a $52.6 million decrease in the average balance of interest-bearing deposits other than certificate accounts. The average cost of total borrowings, comprised of FHLB advances and subordinated notes, increased to 4.20% for the quarter ended December 31, 2022, from 3.06% for the quarter ended September 30, 2022, and decreased from 5.73% for the quarter ended December 31, 2021, reflecting the increased use of lower cost FHLB advances during the second half of 2022 to supplement our liquidity needs. The average balance of our total borrowings increased $12.9 million to $71.0 million from $58.1 million for the quarter ended September 30, 2022, and increased $59.4 million from $11.6 million for the quarter ended December 31, 2021 as we used FHLB advances to fund loan growth.

Net interest margin (annualized) was 4.05% for the quarter ended December 31, 2022, compared to 4.13% for the quarter ended September 30, 2022 and 3.53% for the quarter ended December 31, 2021. The decrease in net interest margin from the prior quarter was primarily due to cost of funding increasing at a faster pace than the yield earned on interest-earning assets, driven by the higher average balance of borrowings and certificate accounts, partially offset by the increase in the average balance of loans. The increase from the same quarter a year ago was the result of an increase in interest income on interest-earning assets, driven by the higher average balance of and yield earned on loans, partially offset by an increase in the cost of funding during the second half of 2022.

The Company recorded a provision for loan losses of $125 thousand for the quarter ended December 31, 2022, as compared to $375 thousand for the quarter ended September 30, 2022 and no provision for the quarter ended December 31, 2021. The decrease in the provision for loan losses for the quarter ended December 31, 2022 compared to the quarter ended September 30, 2022 resulted primarily from the lower growth in our loans held-for-portfolio. The provision for loan losses in the fourth quarter of 2022 also reflects the inherent uncertainty related to the economic environment as a result of local, national and global events.

Noninterest income remained essentially unchanged at $1.0 million for the quarters ended December 31, 2022 and September 30, 2022, and decreased $465 thousand, or 31.4%, from $1.5 million for the quarter ended December 31, 2021. The decrease in noninterest income from the comparable period in 2021 was primarily due to a $458 thousand decrease in net gain on sale of loans as a result of a decline in both the amount of loans originated for sale and gross margins for loans sold and a $13 thousand decrease in the fair value adjustment on mortgage servicing rights, partially offset by a $40 thousand increase in earnings on the cash surrender value of bank-owned life insurance (“BOLI”). Loans sold during the quarter ended December 31, 2022, totaled $3.5 million, compared to $2.3 million and $19.1 million during the quarters ended September 30, 2022 and December 31, 2021, respectively.

Noninterest expense increased $82 thousand, or 1.2%, to $7.1 million for the quarter ended December 31, 2022, compared to $7.0 million for the quarter ended September 30, 2022 and increased $190 thousand, or 2.7%, from $6.9 million for the quarter ended December 31, 2021. The increase from the quarter ended September 30, 2022 was primarily a result of an increase in salaries and benefits expense of $190 thousand resulting from lower deferred compensation and higher medical expenses, partially offset by a decrease in incentive compensation expense as a result of lower loan and deposit growth. Operations expense decreased $92 thousand primarily due to decreases in various expenses including marketing expenses and charitable contributions, insurance costs, and office expenses, partially offset by an increase in audit and professional fees. The increase in noninterest expense compared to the quarter ended December 31, 2021 was primarily due to an increase in salaries and benefits of $448 thousand primarily due to higher wages and medical expenses and lower deferred compensation, partially offset by a decrease in incentive compensation as a result of a lower percentage earned on loans originated, changes to incentive compensation programs, such as the addition of non-production performance requirements, and lower commission expense related to a decline in mortgage originations. Operations expense decreased $243 thousand compared to the quarter ended December 31, 2021 due to lower loan origination costs due to lower mortgage origination volume, a lower reserve for unfunded commitments and decreases in various accounts including marketing, charitable contributions and professional fees. These decreases were partially offset by increases in various accounts including travel expenses, debit card processing, audit fees, fixed assets and office expenses.

The efficiency ratio for the quarter ended December 31, 2022 was 66.49%, compared to 66.23% for the quarter ended September 30, 2022 and 75.31% for the quarter ended December 31, 2021. The improvement in the efficiency ratio for the current quarter compared to the same period in the prior year was primarily due to higher net interest income, partially offset by higher noninterest expense and lower noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

Assets at December 31, 2022 totaled $976.4 million, compared to $982.2 million at September 30, 2022 and $919.7 million at December 31, 2021. The decrease in total assets from the sequential quarter was primarily due to a decrease in cash and cash equivalents as a result of a decrease in deposits and to repay borrowings. The increase from one year ago was primarily a result of increases in loans held-for-portfolio and investment securities, partially offset by lower balances in cash and cash equivalents.

Cash and cash equivalents decreased $18.2 million, or 24.0%, to $57.8 million at December 31, 2022, compared to $76.1 million at September 30, 2022, and decreased $125.8 million, or 68.5%, from $183.6 million at December 31, 2021. The decrease from the prior quarter-end was primarily due to the deployment of excess liquidity into higher yielding loans. The decrease from one year ago was primarily due to deploying cash earning a nominal yield into higher interest-earning loans and investments securities, partially offset by an increase in deposits, primarily certificate accounts.

Investment securities decreased $197 thousand, or 1.6%, to $12.4 million at December 31, 2022, compared to $12.6 million at September 30, 2022, and increased $4.0 million, or 47.4%, from $8.4 million at December 31, 2021. Held-to-maturity securities totaled $2.2 million at both December 31, 2022 and September 30, 2022, compared to zero at December 31, 2021. Available-for-sale securities totaled $10.2 million at December 31, 2022, compared to $10.4 million at September 30, 2022, and $8.4 million at December 31, 2021. The decrease in available-for-sale securities from the prior quarter-end was primarily due to the call of a municipal bond for $260 thousand and regularly scheduled payments, partially offset by a lower net unrealized losses resulting from an increase in market values during the quarter. The increase from one year ago was primarily due to investment purchases during the year, partially offset by the call of one municipal bond, regularly scheduled payments and maturities, and net unrealized losses resulting from the increases in market interest rates during the year.

Loans held-for-portfolio increased to $866.0 million at December 31, 2022, compared to $851.4 million at September 30, 2022 and increased from $686.4 million at December 31, 2021. The increase in loans held-for-portfolio at December 31, 2022, compared to the prior quarter-end, primarily resulted from increases in residential, construction and land, and consumer loans, partially offset by a decline in commercial real estate and multifamily loans. The increase in loans held-for-portfolio at December 31, 2022, compared to one year ago, primarily resulted from increases across all loan categories, excluding commercial business loans which decreased between the periods primarily due to SBA loan forgiveness payments on Paycheck Protection Program loans. The increase in loans held-for-portfolio primarily resulted from focused marketing campaigns, increased utilization of digital marketing tools and the addition of experienced lending staff.

Nonperforming assets (“NPAs”), which are comprised of nonaccrual loans, including nonperforming troubled debt restructurings (“TDRs”), other real estate owned (“OREO”) and other repossessed assets, increased $473 thousand, or 15.0%, to $3.6 million at December 31, 2022, from $3.1 million at September 30, 2022 and decreased $2.6 million, or 41.7% from $6.2 million at December 31, 2021. The increase in nonperforming assets from the prior quarter-end was primarily due to the addition of four nonaccrual loans during the current quarter, including two one-to-four family loans, one home equity loan and one land loan. The decrease from one year ago was primarily due to the payoff of a $2.3 million nonperforming multifamily loan during 2022. Loans classified as TDRs totaled $2.0 million, $2.0 million and $2.6 million at December 31, 2022, September 30, 2022 and December 31, 2021, respectively, of which $103 thousand, $108 thousand and $422 thousand, respectively, were classified as nonperforming at those dates.

NPAs to total assets were 0.37%, 0.32% and 0.68% at December 31, 2022, September 30, 2022 and December 31, 2021, respectively. The allowance for loan losses to total loans outstanding was 0.88%, 0.88% and 0.92% at December 31, 2022, September 30, 2022 and December 31, 2021, respectively. Net loan charge-offs for the fourth quarter of 2022 totaled $15 thousand, compared to $3 thousand for the third quarter of 2022, and $21 thousand for the fourth quarter of 2021.

The following table summarizes our NPAs at the dates indicated (dollars in thousands):

	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Nonperforming Loans:
One-to-four family	$	2,135			$	1,960			$	1,670			$	1,676			$	2,207
Home equity loans		142				133				152				155				140
Commercial and multifamily		—				—				2,307				2,336				2,380
Construction and land		324				29				30				31				33
Manufactured homes		96				99				117				135				122
Floating homes		—				—				—				—				493
Commercial business		—				—				—				170				176
Other consumer		262				265				233				244				—
Total nonperforming loans		2,959				2,486				4,509				4,747				5,552
OREO and Other Repossessed Assets:
One-to-four family		84				84				84				84				84
Commercial and multifamily		575				575				575				575				575
Total OREO and repossessed assets		659				659				659				659				659
Total nonperforming assets	$	3,618			$	3,145			$	5,168			$	5,406			$	6,211
Nonperforming Loans:
One-to-four family		59.0	%			62.3	%			32.3	%			31.0	%			35.5	%
Home equity loans		3.9				4.2				2.9				2.9				2.3
Commercial and multifamily		—				—				44.7				43.2				38.3
Construction and land		9.0				0.9				0.6				0.6				0.5
Manufactured homes		2.7				3.2				2.3				2.5				2.0
Floating homes		—				—				—				—				7.9
Commercial business		—				—				—				3.1				2.8
Other consumer		7.2				8.4				4.5				4.5				—
Total nonperforming loans		81.8				79.0				87.3				87.8				89.3
OREO and Other Repossessed Assets:
One-to-four family		2.3				2.7				1.6				1.6				1.4
Commercial and multifamily		15.9				18.3				11.1				10.6				9.3
Total OREO and repossessed assets		18.2				21.0				12.7				12.2				10.7
Total nonperforming assets		100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

The following table summarizes the allowance for loan losses for the periods indicated (dollars in thousands, unaudited):

	For the Quarter Ended:
	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Allowance for Loan Losses
Balance at beginning of period	$	7,489			$	7,117			$	6,407			$	6,306			$	6,327
Provision for loan losses during the period		125				375				600				125				—
Net (charge-offs)/recoveries during the period		(15	)			(3	)			110				(24	)			(21	)
Balance at end of period	$	7,599			$	7,489			$	7,117			$	6,407			$	6,306
Allowance for loan losses to total loans		0.88	%			0.88	%			0.88	%			0.90	%			0.92	%
Allowance for loan losses to total nonperforming loans		256.81	%			301.25	%			157.84	%			134.97	%			113.58	%

Deposits decreased $6.6 million, or 0.8%, to $808.8 million at December 31, 2022, from $815.4 million at September 30, 2022 and increased $10.4 million, or 1.3%, from $798.3 million at December 31, 2021. The decrease in deposits compared to the prior quarter-end was primarily a result of lower balances in all deposit products, excluding certificate accounts, largely driven by seasonal declines in escrow accounts and year end distributions in business accounts. The increase in our deposits compared to one year ago was a result of an increase in certificate accounts, which was primarily used to fund organic loan growth in 2022. Our noninterest-bearing deposits decreased $19.1 million, or 9.9% to $173.2 million at December 31, 2022, compared to $192.3 million at September 30, 2022 and decreased $17.3 million, or 9.1% from $190.5 million at December 31, 2021. Noninterest-bearing deposits represented 21.4%, 23.6% and 23.9% of total deposits at December 31, 2022, September 30, 2022 and December 31, 2021, respectively.

There were $43.0 million of outstanding FHLB advances at December 31, 2022, as compared to $44.5 million at September 30, 2022 and none at December 31, 2021. During 2022, FHLB advances were primarily used to support organic loan growth and to maintain liquidity ratios in line with our asset/liability objectives. Subordinated notes, net totaled $11.7 million at each of December 31, 2022, September 30, 2022 and December 31, 2021.

Stockholders’ equity totaled $97.7 million at December 31, 2022, an increase of $2.7 million, or 2.9%, from $95.0 million at September 30, 2022, and an increase of $4.3 million, or 4.7%, from $93.4 million at December 31, 2021. The increase in stockholders’ equity from September 30, 2022 was primarily the result of $2.9 million of net income earned during the current quarter, a $148 thousand decrease in accumulated other comprehensive loss, net of tax, and $28 thousand in proceeds from exercises of stock options, partially offset by the payment of $441 thousand in dividends to Company stockholders .

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.

Forward Looking Statement Disclaimer

When used in this press release and in documents filed or furnished by Sound Financial Bancorp, Inc. (the "Company") with the Securities and Exchange Commission (the "SEC"), in the Company's other 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 listed below or because of other factors that we cannot foresee that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made.

Factors which could cause actual results to differ materially, include, but are not limited to: potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation or deflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia's invasion of Ukraine, as well as supply chain disruptions and any governmental or societal responses to new COVID-19 variants; changes in consumer spending, borrowing and savings habits; 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; increased competition; changes in management's business strategies; legislative changes; 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 documents filed with or furnished to the Securities and Exchange Commission, which are available at www.soundcb.com and on the SEC's website at www.sec.gov. The risks inherent in these factors could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company and could negatively affect the Company's operating and stock performance.

The Company does not undertake—and specifically disclaims any obligation—to revise any forward-looking statement to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statement.

CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)

		For the Quarter Ended
		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Interest income		$	11,819			$	10,776			$	8,986			$	8,213			$	8,359
Interest expense			2,131				1,179				594				595				643
Net interest income			9,688				9,597				8,392				7,618				7,716
Provision for loan losses			125				375				600				125				—
Net interest income after provision for loan losses			9,563				9,222				7,792				7,493				7,716
Noninterest income:
Service charges and fee income			618				604				596				549				632
(Earnings) loss on cash surrender value of bank-owned life insurance			175				59				(35	)			21				135
Mortgage servicing income			303				306				313				320				323
Fair value adjustment on mortgage servicing rights			(127	)			9				57				268				(114	)
Net gain on sale of loans			49				48				84				365				507
Total noninterest income			1,018				1,026				1,015				1,523				1,483
Noninterest expense:
Salaries and benefits			4,234				4,044				3,969				4,167				3,786
Operations			1,489				1,581				1,428				1,314				1,732
Regulatory assessments			136				116				99				101				96
Occupancy			418				447				439				432				451
Data processing			841				848				849				821				863
Total noninterest expense			7,118				7,036				6,784				6,835				6,928
Income before provision for income taxes			3,463				3,212				2,023				2,181				2,271
Provision for income taxes			539				666				409				458				407
Net income		$	2,924			$	2,546			$	1,614			$	1,723			$	1,864

CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)

		For the Year Ended December 31
			2022				2021
Interest income		$	39,795			$	33,874
Interest expense			4,500				3,954
Net interest income			35,295				29,920
Provision for loan losses			1,225				425
Net interest income after provision for loan losses			34,070				29,495
Noninterest income:
Service charges and fee income			2,368				2,247
Earnings on cash surrender value of bank-owned life insurance			219				416
Mortgage servicing income			1,242				1,284
Fair value adjustment on mortgage servicing rights			207				(808	)
Net gain on sale of loans			546				4,190
Total noninterest income			4,582				7,329
Noninterest expense:
Salaries and benefits			16,415				14,257
Operations			5,812				5,765
Regulatory assessments			452				379
Occupancy			1,737				1,748
Data processing			3,360				3,263
Net gain on OREO and repossessed assets			—				(16	)
Total noninterest expense			27,776				25,396
Income before provision for income taxes			10,876				11,428
Provision for income taxes			2,072				2,272
Net income		$	8,804			$	9,156

CONSOLIDATED BALANCE SHEET
(Dollars in thousands, unaudited)

		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
ASSETS
Cash and cash equivalents		$	57,836			$	76,064			$	80,051			$	197,091			$	183,590
Available-for-sale securities, at fair value			10,207				10,396				9,382				10,223				8,419
Held-to-maturity securities, at amortized cost			2,199				2,207				2,215				2,223				—
Loans held-for-sale			—				1,908				100				1,297				3,094
Loans held-for-portfolio			865,981				851,447				806,078				709,485				686,398
Allowance for loan losses			(7,599	)			(7,489	)			(7,117	)			(6,407	)			(6,306	)
Total loans held-for-portfolio, net			858,382				843,958				798,961				703,078				680,092
Accrued interest receivable			3,083				2,809				2,350				2,117				2,217
Bank-owned life insurance, net			21,314				21,140				21,081				21,116				21,095
Other real estate owned ("OREO") and other repossessed assets, net			659				659				659				659				659
Mortgage servicing rights, at fair value			4,687				4,787				4,754				4,668				4,273
Federal Home Loan Bank ("FHLB") stock, at cost			2,832				2,897				2,317				1,117				1,046
Premises and equipment, net			5,513				5,505				5,632				5,730				5,819
Right-of-use assets			5,102				5,319				5,548				5,777				5,811
Other assets			4,537				4,597				3,954				3,758				3,576
TOTAL ASSETS		$	976,351			$	982,246			$	937,004			$	958,854			$	919,691
LIABILITIES
Interest-bearing deposits		$	635,567			$	623,122			$	599,377			$	627,323			$	607,854
Noninterest-bearing deposits			173,196				192,275				186,609				208,768				190,466
Total deposits			808,763				815,397				785,986				836,091				798,320
Borrowings			43,000				44,500				30,000				—				—
Accrued interest payable			395				109				194				38				200
Lease liabilities			5,448				5,749				5,980				6,211				6,242
Other liabilities			8,318				8,071				9,210				9,169				8,571
Advance payments from borrowers for taxes and insurance			1,046				1,799				922				1,851				1,366
Subordinated notes, net			11,676				11,665				11,655				11,644				11,634
TOTAL LIABILITIES			878,646				887,290				843,947				865,004				826,333
STOCKHOLDERS' EQUITY:
Common stock			26				26				26				26				26
Additional paid-in capital			28,004				27,886				27,777				28,154				27,956
Retained earnings			70,792				68,309				66,203				66,139				65,237
Accumulated other comprehensive (loss) income, net of tax			(1,117	)			(1,265	)			(949	)			(469	)			139
TOTAL STOCKHOLDERS' EQUITY			97,705				94,956				93,057				93,850				93,358
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	976,351			$	982,246			$	937,004			$	958,854			$	919,691

KEY FINANCIAL RATIOS
(unaudited)

		For the Quarter Ended
		December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
Annualized return on average assets		1.16	%		1.04	%		0.70	%		0.75	%		0.81	%
Annualized return on average equity		11.94			10.61			6.86			7.39			7.90
Annualized net interest margin(1)		4.05			4.13			3.83			3.49			3.53
Annualized efficiency ratio(2)		66.49	%		66.23	%		72.12	%		74.77	%		75.31	%

^{(1)   Net interest income divided by average interest earning assets.
(2)   Noninterest expense divided by total revenue (net interest income and noninterest income).}

PER COMMON SHARE DATA
(unaudited)

		At or For the Quarter Ended
		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Basic earnings per share		$	1.13			$	0.99			$	0.62			$	0.66			$	0.72
Diluted earnings per share		$	1.12			$	0.97			$	0.61			$	0.65			$	0.70
Weighted-average basic shares outstanding			2,565,407				2,562,551				2,584,179				2,602,168				2,586,570
Weighted-average diluted shares outstanding			2,600,905				2,597,690				2,615,299				2,640,359				2,631,721
Common shares outstanding at period-end			2,583,619				2,581,949				2,578,595				2,621,531				2,613,768
Book value per share		$	37.82			$	36.78			$	36.09			$	35.80			$	35.72

AVERAGE BALANCE, AVERAGE YIELD EARNED, AND AVERAGE RATE PAID
(Dollars in thousands, unaudited)

The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual (dollars in thousands).

	Three Months Ended
	December 31, 2022										September 30, 2022										December 31, 2021
	Average Outstanding Balance				Interest Earned/ Paid			Yield/ Rate			Average Outstanding Balance				Interest Earned/ Paid			Yield/ Rate			Average Outstanding Balance				Interest Earned/ Paid			Yield/ Rate
Interest-Earning Assets:
Loans receivable	$	861,371			$	11,078		5.10	%		$	833,195			$	10,327		4.92	%		$	690,680			$	8,238		4.73	%
Investments and interest-bearing cash		88,503				741		3.32	%			88,812				449		2.01	%			176,942				121		0.27	%
Total interest-earning assets	$	949,874			$	11,819		4.94	%		$	922,007			$	10,776		4.64	%		$	867,622			$	8,359		3.82	%
Interest-Bearing Liabilities:
Savings and money market accounts	$	174,410			$	88		0.20	%		$	188,276			$	63		0.13	%		$	183,730			$	36		0.08	%
Demand and NOW accounts		267,043				280		0.42	%			290,106				164		0.22	%			310,352				126		0.16	%
Certificate accounts		186,277				1,011		2.15	%			130,541				503		1.53	%			110,985				313		1.12	%
Subordinated notes		11,669				168		5.71	%			11,658				168		5.72	%			11,627				168		5.73	%
Borrowings		59,348				584		3.90	%			46,462				281		2.40	%			2				—		—	%
Total interest-bearing liabilities	$	698,747				2,131		1.21	%		$	667,043				1,179		0.70	%		$	616,696				643		0.41	%
Net interest income/spread					$	9,688		3.73	%						$	9,597		3.94	%						$	7,716		3.41	%
Net interest margin								4.05	%									4.13	%									3.53	%
Ratio of interest-earning assets to interest-bearing liabilities		136	%									138	%									141	%
Noninterest-bearing deposits	$	183,800									$	189,379									$	190,551
Total deposits		811,530			$	1,379		0.67	%			798,302			$	730		0.36	%			795,618			$	475		0.24	%
Total funding (1)		882,547				2,131		0.96	%			856,422				1,179		0.55	%			807,247				643		0.32	%

^{(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.}

	Year Ended
	December 31, 2022										December 31, 2021
	Average Outstanding Balance				Interest Earned/ Paid			Yield/ Rate			Average Outstanding Balance				Interest Earned/ Paid			Yield/ Rate
Interest-Earning Assets:
Loans receivable	$	783,372			$	38,177		4.87	%		$	650,045			$	33,389		5.14	%
Investments and interest-bearing cash		124,331				1,618		1.30	%			221,577				485		0.22	%
Total interest-earning assets	$	907,703			$	39,795		4.38	%		$	871,622			$	33,874		3.89	%
Interest-Bearing Liabilities:
Savings and money market accounts	$	188,478			$	211		0.11	%		$	171,406			$	180		0.11	%
Demand and NOW accounts		295,919				690		0.23	%			289,096				611		0.21	%
Certificate accounts		129,011				2,049		1.59	%			158,649				2,491		1.57	%
Subordinated notes		11,653				672		5.77	%			11,611				672		5.79	%
Borrowings		27,273				878		3.22	%			1				—		—	%
Total interest-bearing liabilities	$	652,334				4,500		0.69	%		$	630,763				3,954		0.63	%
Net interest income/spread					$	35,295		3.69	%						$	29,920		3.26	%
Net interest margin								3.89	%									3.43	%
Ratio of interest-earning assets to interest-bearing liabilities		139	%									138	%
Noninterest-bearing deposits	$	190,113									$	178,535
Total deposits		803,521			$	2,950		0.37	%			797,686			$	3,282		0.41	%
Total funding (1)		842,447				4,500		0.53	%			809,298				3,954		0.49	%

^{(1)   Total funding is the sum of average interest-bearing liabilities and average noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.}

LOANS
(Dollars in thousands, unaudited)

		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Real estate loans:
One-to-four family		$	274,638			$	270,009			$	250,295			$	221,832			$	207,660
Home equity			19,548				17,642				16,374				13,798				13,250
Commercial and multifamily			313,358				315,677				307,462				279,892				278,175
Construction and land			116,878				112,980				101,394				70,402				63,105
Total real estate loans			724,422				716,308				675,525				585,924				562,190
Consumer Loans:
Manufactured homes			26,953				25,375				23,264				22,179				21,636
Floating homes			74,443				69,968				66,573				59,784				59,268
Other consumer			17,923				17,565				18,076				18,370				16,748
Total consumer loans			119,319				112,908				107,913				100,333				97,652
Commercial business loans			23,815				23,986				24,302				24,452				28,026
Total loans			867,556				853,202				807,740				710,709				687,868
Less:
Premiums			973				984				1,010				788				897
Deferred fees, net			(2,548	)			(2,739	)			(2,672	)			(2,012	)			(2,367	)
Allowance for loan losses			(7,599	)			(7,489	)			(7,117	)			(6,407	)			(6,306	)
Total loans held for portfolio, net		$	858,382			$	843,958			$	798,961			$	703,078			$	680,092

DEPOSITS
(Dollars in thousands, unaudited)

		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Noninterest-bearing		$	173,196			$	192,275			$	186,609			$	208,768			$	190,466
Interest-bearing			254,982				284,267				312,439				333,449				307,061
Savings			95,641				99,602				103,311				106,217				103,401
Money market			74,639				84,692				87,672				89,164				91,670
Certificates			210,305				154,561				95,955				98,493				105,722
Total deposits		$	808,763			$	815,397			$	785,986			$	836,091			$	798,320

CREDIT QUALITY DATA
(Dollars in thousands, unaudited)

		At or For the Quarter Ended
		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Nonaccrual loans		$	2,855			$	2,378			$	4,381			$	4,474			$	5,130
Nonperforming TDRs			103				108				128				273				422
Total nonperforming loans			2,959				2,486				4,509				4,747				5,552
OREO and other repossessed assets			659				659				659				659				659
Total nonperforming assets		$	3,618			$	3,145			$	5,168			$	5,406			$	6,211
Performing TDRs			1,885				1,912				1,866				2,072				2,174
Net (charge-offs) recoveries during the quarter			(15	)			(3	)			110				(24	)			(21	)
Provision for loan losses during the quarter			125				375				600				125				—
Allowance for loan losses			7,599				7,489				7,117				6,407				6,306
Allowance for loan losses to total loans			0.88	%			0.88	%			0.88	%			0.90	%			0.92	%
Allowance for loan losses to total nonperforming loans			256.84	%			301.24	%			157.84	%			134.96	%			113.58	%
Nonperforming loans to total loans			0.34	%			0.29	%			0.56	%			0.67	%			0.81	%
Nonperforming assets to total assets			0.37	%			0.32	%			0.55	%			0.56	%			0.68	%

OTHER STATISTICS
(Dollars in thousands, unaudited)

		At or For the Quarter Ended
		December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
Total loans to total deposits			107.27	%			104.64	%			102.77	%			85.00	%			86.16	%
Noninterest-bearing deposits to total deposits			21.41	%			23.58	%			23.74	%			24.97	%			23.86	%
Average total assets for the quarter		$	996,042			$	969,254			$	920,984			$	931,094			$	916,261
Average total equity for the quarter		$	97,119			$	95,244			$	94,397			$	94,497			$	93,569

Category: Earnings

Contact

Financial:
Wes Ochs
Executive Vice President/CFO
(206) 436-8587
Media:
Laurie Stewart
President/CEO
(206) 436-1495

FAQ

What was Sound Financial Bancorp's net income for Q4 2022?

Sound Financial Bancorp reported a net income of $2.9 million for Q4 2022.

What is the cash dividend declared by Sound Financial Bancorp?

The cash dividend declared is $0.17 per share, payable on February 23, 2023.

How much did total deposits change by at the end of Q4 2022?

Total deposits decreased by $6.6 million or 0.8% to $808.8 million at the end of Q4 2022.

What is the loan growth recorded by Sound Financial Bancorp in Q4 2022?

Sound Financial Bancorp recorded its eighth consecutive quarter of loan growth, with loans held-for-portfolio increasing by 1.7% to $866.0 million.

What was the increase in nonperforming loans for Q4 2022?

Nonperforming loans increased by 19.0% to $3.0 million in Q4 2022.