Sound Financial Bancorp(SFBC) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls Financial Statements The unaudited condensed consolidated financial statements for Sound Financial Bancorp, Inc. as of March 31, 2025, show an increase in total assets to $1.07 billion from $993.6 million at year-end 2024, primarily driven by a significant rise in cash and cash equivalents. Net income for the first quarter of 2025 was $1.2 million, a 51.6% increase from $770 thousand in the same period of 2024, largely due to higher net interest income. The statements reflect the company's financial position, operational results, and cash flows for the period Condensed Consolidated Balance Sheets This section details the company's financial position, highlighting changes in assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $131,494 | $43,641 | +201.3% | | Total loans held-for-portfolio, net | $877,833 | $891,672 | -1.6% | | Total assets | $1,069,186 | $993,633 | +7.6% | | Total deposits | $910,347 | $837,799 | +8.7% | | Total liabilities | $964,755 | $889,967 | +8.4% | | Total stockholders' equity | $104,431 | $103,666 | +0.7% | - The significant increase in cash and cash equivalents was a primary driver for the growth in total assets[10] Condensed Consolidated Statements of Income This section presents the company's operational performance, focusing on revenue, expenses, and net income Condensed Consolidated Statements of Income Highlights (unaudited) | Metric | Three Months Ended Mar 31, 2025 (in thousands) | Three Months Ended Mar 31, 2024 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net interest income | $8,071 | $7,460 | +8.2% | | Release of credit losses | $(203) | $(33) | +515.2% | | Noninterest income | $1,098 | $1,096 | +0.2% | | Noninterest expense | $7,914 | $7,656 | +3.4% | | Net income | $1,167 | $770 | +51.6% | | Diluted EPS | $0.45 | $0.30 | +50.0% | - Net income grew significantly year-over-year, driven by an increase in net interest income and a larger release of credit losses[12] Condensed Consolidated Statements of Comprehensive Income This section outlines the company's comprehensive income, including net income and other comprehensive loss components Comprehensive Income (unaudited) | Metric | Three Months Ended Mar 31, 2025 (in thousands) | Three Months Ended Mar 31, 2024 (in thousands) | | :--- | :--- | :--- | | Net income | $1,167 | $770 | | Other comprehensive loss, net of tax | $(17) | $(62) | | Comprehensive income | $1,150 | $708 | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including net income and dividend distributions - Stockholders' equity increased from $103.7 million at Dec 31, 2024, to $104.4 million at March 31, 2025. The increase was primarily due to net income of $1.2 million, partially offset by cash dividends of $487 thousand[16] - The company paid a cash dividend of $0.19 per share during the first quarter of 2025[16] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2025 (in thousands) | Three Months Ended Mar 31, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,852 | $3,519 | | Net cash provided by (used in) investing activities | $13,923 | $(5,101) | | Net cash provided by financing activities | $72,078 | $89,869 | | Net change in cash and cash equivalents | $87,853 | $88,287 | - The net increase in cash was primarily driven by a net increase in deposits of $72.5 million and a net decrease in loans of $13.9 million[18] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements - The company operates under one segment and has not made any significant changes to its accounting policies from the 2024 Form 10-K[23][24] - Total loans held-for-portfolio decreased to $886.2 million at March 31, 2025, from $900.2 million at December 31, 2024. The Allowance for Credit Losses (ACL) on loans was $8.4 million[32] - Nonaccrual loans increased to $9.7 million as of March 31, 2025, from $7.5 million at December 31, 2024[46] - The company has $25.0 million in FHLB advances and $11.8 million in subordinated notes outstanding as of March 31, 2025[75][81] - On April 29, 2025, the Board of Directors declared a quarterly cash dividend of $0.19 per common share[87] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 51.6% year-over-year increase in Q1 2025 net income to a $611 thousand rise in net interest income and a $170 thousand increase in the release of credit loss provisions. The net interest margin improved to 3.25% from 2.95% due to decreased funding costs. Total assets grew by 7.6% to $1.07 billion, driven by higher cash balances from the return of reciprocal deposits. The loan portfolio saw a slight decrease, mainly from a reduction in construction and land loans. Nonperforming assets increased to 0.91% of total assets. The company remains well-capitalized, with a Community Bank Leverage Ratio (CBLR) of 9.98%, exceeding the 9% minimum Comparison of Financial Condition This section analyzes changes in the company's balance sheet, including assets, liabilities, and equity - Total assets increased by $75.6 million (7.6%) to $1.07 billion at March 31, 2025, primarily due to an $87.9 million increase in cash and cash equivalents, which was driven by the return of reciprocal deposits that were strategically moved off-balance sheet at year-end 2024[98][99] - Net loans held-for-portfolio decreased by $13.8 million (1.6%) to $877.8 million. This was mainly caused by a $30.6 million (41.9%) decline in construction and land loans due to project completions and a significant loan payoff[101][103] - Total deposits increased by $72.5 million (8.7%) to $910.3 million, largely due to the return of reciprocal deposits. However, noninterest-bearing deposits decreased by $5.8 million (4.4%)[115] - Nonperforming assets (NPAs) increased by $2.2 million to $9.7 million, representing 0.91% of total assets, up from 0.75% at year-end 2024. The increase was primarily due to the addition of six loans totaling $2.4 million to nonaccrual status[111][112] Comparison of Results of Operations This section discusses the company's financial performance, focusing on revenue, expenses, and profitability drivers - Net income for Q1 2025 was $1.2 million, a 51.6% increase from $770 thousand in Q1 2024. This was primarily driven by a $611 thousand increase in net interest income[124] Net Interest Margin Analysis | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net interest income | $8,071 thousand | $7,460 thousand | | Net interest rate spread | 2.68% | 2.32% | | Net interest margin | 3.25% | 2.95% | - The net interest margin improved by 30 basis points year-over-year, mainly due to decreased funding costs from lower average rates on deposits and a lower average balance of borrowings[132] - A release of credit losses of $203 thousand was recorded in Q1 2025, compared to a release of $33 thousand in Q1 2024. The release was primarily due to a decline in the loan portfolio balance[134] - Noninterest expense increased by 3.4% to $7.9 million, largely due to a $276 thousand increase in data processing expenses related to project implementations[138][140] Capital and Liquidity This section assesses the company's capital adequacy, liquidity position, and dividend policies - Stockholders' equity increased by $765 thousand to $104.4 million in Q1 2025, reflecting net income of $1.2 million, partially offset by $487 thousand in common stock dividends[119][144] - The company paid a cash dividend of $0.19 per share in Q1 2025, consistent with Q1 2024[145] - As of March 31, 2025, the company had significant available liquidity, including $139.2 million in cash and AFS securities, $167.5 million in FHLB borrowing capacity, and $20.3 million through the Federal Reserve's discount window[152] - The stock repurchase program approved in January 2024 expired on January 26, 2025, and was not renewed. No shares were repurchased in Q1 2025[147][170] Regulatory Capital This section details the company's compliance with regulatory capital requirements and ratios - The company and the Bank are considered well-capitalized. As of March 31, 2025, the Bank's Community Bank Leverage Ratio (CBLR) was 10.76% and the Company's was 9.98%, both exceeding the 9% minimum requirement[160] - The company has elected to phase in the regulatory capital effects of the CECL accounting standard over a three-year transition period, which began on January 1, 2023[161] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk since the disclosures provided in its 2024 Form 10-K - There have been no material changes in the Company's market risk since its 2024 Form 10-K[163] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2025, and concluded they were effective. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The Principal Executive Officer and Principal Financial Officer concluded that as of March 31, 2025, the Company's disclosure controls and procedures were effective[164] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[167] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other relevant disclosures Legal Proceedings The company is involved in various legal proceedings in the normal course of business, but any potential liability from these is not expected to have a material adverse effect on its financial condition - The Company is occasionally involved in legal proceedings, but any liability from currently pending cases is not expected to have a material adverse effect on the business or financial condition[168] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - There have been no material changes in the Risk Factors previously disclosed in Item 1A of the 2024 Form 10-K[169] Unregistered Sales of Equity Securities and Use of Proceeds The company's stock repurchase program, which authorized up to $1.5 million in purchases, expired on January 26, 2025. No shares were repurchased during the first quarter of 2025 - The stock repurchase program announced on January 26, 2024, expired on January 26, 2025[170] Share Repurchases for Q1 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | — | $— | | February 2025 | — | $— | | March 2025 | — | $— | | Total | — | $— | Other Information During the first quarter of 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - During the three months ended March 31, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[173] Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, forms of stock certificates, various management and compensation agreements, and required certifications by the CEO and CFO - The report includes standard corporate governance documents, management compensation plans, and required SEC certifications as exhibits[179]