Sound Financial Bancorp, Inc Q2 2023 Results.

SEATTLE: Sound Financial Bancorp, Inc. (the "Company") (Nasdaq: SFBC), the holding company for Sound Community Bank (the "Bank"), today reported net income of $2.9 million for the quarter ended June 30, 2023, or $1.11 diluted earnings per share, as compared to net income of $2.2 million, or $0.83 diluted earnings per share, for the quarter ended March 31, 2023, and $1.6 million, or $0.61 diluted earnings per share, for the quarter ended June 30, 2022. The Company also announced today that its Board of Directors declared a cash dividend on Company common stock of $0.19 per share, payable on August 23, 2023 to stockholders of record as of the close of business on August 9, 2023.

Comments from the President and Chief Executive Officer

"Strong earnings for the quarter were fueled by both a recovery from credit losses and a non-recurring death benefit payment received from bank-owned life insurance. While both loans and deposits declined this quarter, the loan contraction was primarily the result of decreases in commercial construction loans based on successful completion of projects," remarked Laurie Stewart, President and Chief Executive Officer. "Deposit balances increased during the first quarter, but seasonal outflows for tax and business planning needs, primarily by our business clients in the second quarter, offset the earlier gains. As a result our loan-to-deposit ratio remained at 104%," concluded Ms. Stewart.

Q2 2023 Financial Performance

Total assets increased $6.4 million or 0.6% to $1.01 billion at June 30, 2023, from $1.00 billion at March 31, 2023, and increased $73.8 million or 7.9% from $937.0 million at June 30, 2022.

Net interest income decreased $627 thousand or 6.7% to $8.7 million for the quarter ended June 30, 2023, from $9.4 million for the quarter ended March 31, 2023, and increased $352 thousand or 4.2% from $8.4 million for the quarter ended June 30, 2022.

Net interest margin ("NIM"), annualized, was 3.71% for the quarter ended June 30, 2023, compared to 4.01% for the quarter ended March 31, 2023 and 3.82% for the quarter ended June 30, 2022.

Loans held-for-portfolio decreased $15.1 million or 1.7% to $855.4 million at June 30, 2023, compared to $870.5 million at March 31, 2023, and increased $49.4 million or 6.1% from $806.1 million at June 30, 2022.

A $331 thousand reversal of credit losses was recorded for the quarter ended June 30, 2023, compared to a $10 thousand provision for credit losses for the quarter ended March 31, 2023 and a $592 thousand provision for credit losses for the quarter ended June 30, 2022. At June 30, 2023, the allowance for credit losses on loans to total nonperforming loans was 543.94%.

Total deposits decreased $19.4 million or 2.3% to $822.3 million at June 30, 2023, from $841.6 million at March 31, 2023, and increased $36.3 million or 4.6% from $786.0 million at June 30, 2022. Noninterest-bearing deposits decreased $14.6 million or 8.4% to $158.5 million at June 30, 2023 compared to $173.1 million at March 31, 2023, and decreased $28.1 million or 15.1% compared to $186.6 million at June 30, 2022.

Loan-to-deposit ratio was 104% at June 30, 2023, compared to 104% at March 31, 2023 and 103% at June 30, 2022.

Earnings on bank-owned life insurance ("BOLI") were $718 thousand for the quarter ended June 30, 2023, compared to $151 thousand for the quarter ended March 31, 2023 and a loss of $35 thousand for the quarter ended June 30, 2022. The current quarter earnings included a non-recurring death benefit related to our BOLI policies.

Net gain on sale of loans was $110 thousand for the quarter ended June 30, 2023, compared to $78 thousand for the quarter ended March 31, 2023 and $84 thousand for the quarter ended June 30, 2022.

Total nonperforming loans increased $218 thousand or 16.8% to $1.5 million at June 30, 2023, from $1.3 million at March 31, 2023, and decreased $3.0 million or 66.5% from $4.5 million at June 30, 2022. Nonperforming loans to total loans were 0.18% and the allowance for credit losses on loans to total loans outstanding was 0.96% at June 30, 2023.

The Bank continued to maintain capital levels in excess of regulatory requirements and was categorized as "well-capitalized" at June 30, 2023.

Operating Results

Net interest income decreased $627 thousand, or 6.7%, to $8.7 million for the quarter ended June 30, 2023, compared to $9.4 million for the quarter ended March 31, 2023, and increased $352 thousand, or 4.2%, from $8.4 million for the quarter ended June 30, 2022. The decrease in the current quarter compared to the prior quarter, was primarily the result of rates paid on and balances of certificate accounts increasing faster than we were able to redeploy the funds into higher earning assets. The increase compared to the second quarter of 2022 was 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 $238 thousand, or 2.0%, to $12.4 million for the quarter ended June 30, 2023, compared to $12.2 million for the quarter ended March 31, 2023, and increased $3.4 million, or 38.1%, from $9.0 million for the quarter ended June 30, 2022. The increase from the prior quarter was primarily due to a three basis point increase in the average yield on loans and a 36 basis point increase in the average yield on investments and interest-bearing cash following continued increases in the targeted federal funds rate, partially offset by lower average balances of loans and 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 64 basis point increase in the average loan yield and a 354 basis point increase in the 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 $170 thousand, or 1.5%, to $11.6 million for the quarter ended June 30, 2023, compared to $11.4 million for the quarter ended March 31, 2023, and increased $2.9 million, or 32.8%, from $8.7 million for the quarter ended June 30, 2022. The average balance of total loans was $866.4 million for the quarter ended June 30, 2023, compared to $867.7 million for the quarter ended...