Executive Summary

Q1 2025 was mixed: diluted EPS of $0.45 declined sequentially from $0.74 (Q4 2024) but rose year-over-year from $0.30 (Q1 2024), as noninterest expense seasonality and lower interest-earning asset yields offset a 12 bp sequential improvement in net interest margin (NIM) to 3.25% .
Management reduced funding costs (average deposit cost fell to 2.37% from 2.58% in Q4) and expanded NIM, citing deposit repricing and higher-rate originations; however, lower interest income from smaller balances and yield compression on loans/cash drove net interest income slightly lower QoQ .
Asset quality saw a discrete uptick: nonperforming loans (NPLs) rose to $9.7M (1.09% of loans) due largely to a few idiosyncratic credits; one was repaid after quarter-end, and 83% of NPLs are concentrated in four well-secured loans, per CFO commentary .
Liquidity and funding mix improved: deposits increased $72.5M QoQ (reciprocal deposits returning on-balance sheet) and cash/equivalents rose to $131.5M, while the loans-to-deposits ratio fell to 97.5% (from 107.6% in Q4) .
The Board declared a $0.19 dividend (payable May 23, 2025), and capital remains “well-capitalized,” supporting investor confidence despite higher NPAs; potential stock catalysts include continued funding cost relief and resolution of a concentrated set of NPLs .

What Went Well and What Went Wrong

What Went Well

Margin expansion: NIM increased to 3.25% (from 3.13% in Q4 and 2.95% a year ago) as deposit costs declined and newer loans carried higher rates. “We remained focused on lowering our cost of deposits and originating new loans at higher rates,” said CEO Laurie Stewart .
Funding cost progress and mix: average deposit cost dropped to 2.37% (from 2.58% in Q4), aided by broad rate cuts since Sept-2024 and strategic reduction of high-cost money market deposits; loans-to-deposits improved to 97.5% from 107.6% in Q4 .
Liquidity and deposit growth: total deposits rose $72.5M QoQ to $910.3M (reciprocal deposits moved back on-balance sheet), lifting cash/equivalents to $131.5M (+201% QoQ) .

What Went Wrong

Sequential earnings pressure: diluted EPS fell to $0.45 from $0.74 in Q4, as net interest income declined slightly and noninterest expenses rose on typical first-quarter items (deferred comp, payroll taxes, subscription renewals) .
Asset quality uptick: NPLs increased to $9.7M (1.09% of loans) from $7.5M (0.83%) in Q4, driven by six loans added to nonaccrual; management emphasized concentration in four well-secured credits and a post-quarter payoff of one CRE loan .
Lower interest income: interest income fell $1.03M QoQ due to lower average balances and yields on loans, investments, and interest-bearing cash; loan yield dipped 8 bps QoQ (interest reversals on nonaccrual), and interest on interest-bearing cash declined $524K .

Financial Results

Core P&L and Margin Trends (USD, except ratios)

Metric	Q3 2024	Q4 2024	Q1 2025
Net interest income ($M)	7.873	8.220	8.071
Provision (Release) for credit losses ($M)	0.008	0.014	(0.203)
Net interest income after provision ($M)	7.865	8.206	8.274
Noninterest income ($M)	1.235	1.160	1.098
Diluted EPS ($)	0.45	0.74	0.45
Net interest margin (NIM, %)	2.98%	3.13%	3.25%
Efficiency ratio (%)	84.31%	75.25%	86.31%
ROAA (annualized, %)	0.42%	0.70%	0.45%

Notes:

Q1 2025 EPS of $0.45 vs $0.30 in Q1 2024 reflects stronger NIM and lower funding costs YoY despite expense/income seasonality .
Sequentially, NII dipped $149K, driven by lower average balances and yields, while expenses rose on typical Q1 items, pressuring the efficiency ratio QoQ .

Balance Sheet and Credit KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Loans HFP (period-end, $M)	901.733	900.171	886.226
Deposits (period-end, $M)	930.197	837.799	910.347
Loans/Deposits (%)	97.13%	107.64%	97.53%
Cash & equivalents ($M)	148.930	43.641	131.494
NPLs ($M)	8.489	7.491	9.653
NPLs/Loans (%)	0.94%	0.83%	1.09%
ACL/Loans (%)	0.95%	0.94%	0.95%

Additional operating detail (Q1 2025 vs Q4 2024):

Average deposit cost fell to 2.37% from 2.58%; average FHLB cost fell to 4.25% from 4.31% .
Interest on interest-bearing cash declined $524K QoQ due to lower balances/yields; average loan yield fell 8 bps QoQ to 5.69% (nonaccrual interest reversals), partially offset by higher-rate originations and resets .
Noninterest expense rose $856K QoQ, driven by salaries/benefits (+$675K), regulatory assessments (+$32K), occupancy (+$28K), data processing (+$61K), and OREO-related items (+$24K) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share	Q2 2025 payout (declared in Q1)	—	$0.19 payable May 23, 2025 (record May 9, 2025)	Initiated/maintained quarterly dividend
Financial guidance (revenue, margins, opex, tax, segments)	FY/Q2 2025	—	No formal quantitative guidance provided in Q1 materials	—

Management did not issue quantitative forward guidance; they reiterated well-capitalized status and focus on lowering funding costs and managing expenses .

Earnings Call Themes & Trends

(Note: No Q1 2025 earnings call transcript was available in the company document set; themes draw from Q1 2025 press release and prior-quarter press releases.)

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
Funding costs and NIM	Q3: NIM +6 bps QoQ to 2.98% as loan yields rose; deposit costs rose modestly . Q4: NIM +15 bps QoQ to 3.13%; deposit cost -16 bps QoQ .	NIM +12 bps QoQ to 3.25%; avg deposit cost down to 2.37% from 2.58% .	Continued margin recovery with funding cost relief.
Deposit strategy/mix	Q3: Growth in money market/certificates; transition from time deposits to lower-cost categories underway . Q4: Movement of reciprocal deposits off balance sheet at YE .	Reciprocal deposits returned in Q1; deposits +$72.5M QoQ; reduced a high-cost money market relationship .	Liquidity stronger; improved L/D.
Technology/operational efficiency	Q3: Online banking upgrade completed; opex held steady . Q4: Expense control through 2024; tech implementations elevated DP costs .	Data processing up YoY from implementations (expected to moderate); Mastercard reimbursements reduced ops expense YoY .	Investments tapering; benefits emerging.
Loan growth/mix	Q3: Loans >$900M; growth in CRE/multifamily, manufactured/floating homes; construction down . Q4: Slight loan decline QoQ; construction unfunded increased .	Loans down QoQ; exited $17M special mention loan; growth in CRE/multifamily and HELOC; construction/1–4 family down .	Mix shift to CRE/multifamily; risk-rated clean-up.
Asset quality	Q3: NPLs down QoQ to $8.5M (0.94%); still elevated YoY . Q4: NPLs down to $7.5M (0.83%); no OREO at 12/31 .	NPLs up to $9.7M (1.09%); concentrated in four well-secured loans; one since repaid .	Mixed: discrete adds, but idiosyncratic/concentrated.
Macro/tariffs	Limited explicit prior mentions.	Qualitative reserve added for consumer/construction given uncertainty tied to tariffs/external factors .	Monitoring macro sensitivities.

Management Commentary

CEO: “Despite ongoing economic uncertainty, we remained focused on lowering our cost of deposits and originating new loans at higher rates, which contributed to a 12-basis point improvement in our net interest margin compared to the prior quarter.” — Laurie Stewart, President and CEO .
CFO: “We continue to prioritize expense management... expenses increased compared to the previous quarter [typical first-quarter items]... we have seen reductions in combined salaries and benefits, and operational expenses, thanks to our investments in technology.” — Wes Ochs, EVP & CFO .
CFO on credit: “We did see an increase in nonperforming loans... mainly due to two specific credits, one of which has since been repaid... 83% of our nonperforming loans are tied to just four loans... well-secured, and we are actively working toward resolutions.” — Wes Ochs .
CFO on provisioning: release driven by smaller loan portfolio and reduced unfunded commitments, partially offset by a qualitative adjustment to consumer/construction given uncertainty tied to tariffs/external factors .

Q&A Highlights

No Q1 2025 earnings call transcript was available in the company’s filings/press materials; therefore, no Q&A themes or guidance clarifications were provided in a call format for this quarter [earnings-call-transcript not found in document catalog].

Estimates Context

Wall Street consensus (S&P Global) for Q1 2025 was not available for EPS or revenue; therefore, no beat/miss assessment vs consensus can be provided for EPS or revenue this quarter (S&P Global data).
S&P Global “Revenue” actual (defined as net interest income after provision + noninterest income) was $9.372M for Q1 2025, matching the sum of reported components (NII after provision $8.274M + noninterest income $1.098M) . Revenue (S&P definition) actual: $9.372M* (Values retrieved from S&P Global).

Where estimates may need to adjust:

Given margin tailwinds (lower deposit costs) but softer interest income from lower balances/yields and higher first-quarter operating costs, forward models may bias toward gradual NIM improvement and normalized noninterest expense run-rates (post-Q1 seasonality), with asset quality resolution timing a swing factor .

Key Takeaways for Investors

Margin trajectory improving: sequential NIM expansion to 3.25% with deposit cost relief suggests continued recovery potential if rate environment remains favorable and funding mix continues to improve .
Expense seasonality explains much of the QoQ EPS decline; management signals data processing growth should moderate as 2025 progresses, and Mastercard reimbursements aid operations expense YoY .
Credit is concentrated, idiosyncratic, and well-secured per management; one of the new CRE nonaccruals was repaid post-quarter, reducing headline NPLs risk .
Liquidity/funding improved: deposits rebounded QoQ (+$72.5M) and cash rose to $131.5M; loans/deposits back below 100%, enhancing flexibility for selective loan growth .
Dividend maintained at $0.19, capital “well-capitalized” — supports defensive profile and total return while the bank executes on funding/margin initiatives .
Trading setup: near-term stock moves likely tied to ongoing deposit cost repricing and any updates on the four concentrated NPLs; faster-than-expected NIM expansion or rapid NPL resolution would be positive catalysts, while renewed asset quality pressure or slowing loan demand would be risks .

Appendix: Additional Details

Q1 2025 operating dynamics:
- Interest income fell $1.03M QoQ to $13.706M on lower average balances and yields (loan yield -8 bps QoQ to 5.69%, interest-bearing cash yield -41 bps; cash interest -$524K QoQ) .
- Average deposit cost improved to 2.37% from 2.58% (FHLB 4.25% vs 4.31% in Q4), supporting NIM expansion .
- Noninterest income decreased $62K QoQ (MSR FV -$176K; partially offset by higher BOLI +$68K and service charges +$65K) .
- Noninterest expense rose $856K QoQ on salaries/benefits (+$675K), regulatory assessments (+$32K), occupancy (+$28K), and data processing (+$61K) .
Credit detail:
- NPLs by category at 3/31/25 ($M): CRE/multifamily $5.627, floating homes $2.363, 1–4 family $0.762, manufactured homes $0.501, HELOC $0.368, others immaterial; OREO $0.041 .
- ACL/Loans 0.95%; net charge-offs $21K in Q1; NPAs/Assets 0.91% .
Dividend and capital:
- $0.19 per share declared, payable May 23, 2025 (record May 9, 2025); bank remains “well-capitalized” .

Footnote:

Items marked with an asterisk (*) are Values retrieved from S&P Global.

Sound Financial Bancorp, Inc. (SFBC)·Q1 2025 Earnings Summary