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Sound Financial Bancorp, Inc. (SFBC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered net income of $1.9M and diluted EPS of $0.74; NIM expanded 15 bps QoQ to 3.13% on lower deposit costs (-16 bps), while noninterest expense fell 8.1% QoQ, improving efficiency to 75.25% .
  • Deposits declined 9.9% QoQ to $837.8M due to year‑end movement of reciprocal deposits off balance sheet (with return in Q1’25) and intentional reduction of a high‑cost money market relationship to lower funding costs; loans-to-deposits rose to 107.64% .
  • Credit metrics mixed: nonperforming loans fell 11.8% QoQ to $7.5M, but remained up sharply YoY; ACL coverage of NPLs improved to 113.46% .
  • Management reiterated balance sheet strategy to keep assets below $1B to increase operational flexibility and deliver cost savings; board declared a $0.19 dividend payable Feb 26, 2025, consistent with prior quarters .
  • Wall Street consensus estimates were unavailable via S&P Global at time of retrieval; therefore, no beat/miss determination versus consensus for Q4 2024 (MarketBeat shows “N/A” for consensus) .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin expanded to 3.13% (+15 bps QoQ) driven by deposit cost reductions (-16 bps QoQ) and higher loan yields; CEO highlighted “many positives,” including NIM expansion and cost control .
  • Nonperforming loans decreased 11.8% QoQ and OREO was eliminated for the first time in more than a decade, signaling progress on asset quality; “we have no OREO,” noted the CEO .
  • Noninterest expense declined 8.1% QoQ with lower salaries/benefits and operations costs, improving efficiency (75.25% vs 84.31% in Q3) .

What Went Wrong

  • Total deposits fell 9.9% QoQ (strategic off‑balance sheet movement and pruning high‑cost money market balances), pushing the loans-to-deposits ratio to 107.64% and elevating reliance on deposits returning in Q1’25 .
  • NPLs remain elevated YoY (+110.7%), with floating homes and commercial/multifamily as key contributors; NPL/Loans was 0.83% in Q4 .
  • Noninterest income dipped QoQ (-6.1%) on lower BOLI earnings (-$59K) and a negative MSR fair value adjustment (-$24K), reflecting rate‑driven volatility .

Financial Results

EPS and Net Income

MetricQ2 2024Q3 2024Q4 2024
Diluted EPS ($/share)$0.31 $0.45 $0.74
Net Income ($USD Thousands)$795 $1,154 $1,919

Core Revenue Components and Margins

MetricQ2 2024Q3 2024Q4 2024
Net Interest Income ($USD Thousands)$7,448 $7,873 $8,220
Noninterest Income ($USD Thousands)$1,162 $1,235 $1,160
Net Interest Margin (annualized, %)2.92% 2.98% 3.13%
Efficiency Ratio (%, annualized)89.86% 84.31% 75.25%
ROAA (annualized, %)0.30% 0.42% 0.70%
ROAE (annualized, %)3.17% 4.50% 7.40%

Loan Portfolio Mix (Selected Categories)

Loans ($USD Thousands)Q2 2024Q3 2024Q4 2024
Commercial & Multifamily$342,632 $358,587 $371,516
Construction & Land$96,962 $85,724 $73,077
Floating Homes$81,622 $86,155 $86,411
Manufactured Homes$38,953 $40,371 $41,128
One‑to‑Four Family$268,488 $271,702 $269,684
Total Loans$891,124 $903,485 $901,827

KPIs and Deposit Mix

KPIQ2 2024Q3 2024Q4 2024
Loans / Deposits (%)98.27% 97.13% 107.64%
Noninterest‑Bearing Demand ($USD Thousands)$124,915 $129,717 $132,532
Money Market ($USD Thousands)$253,873 $285,655 $206,067
Certificates ($USD Thousands)$311,784 $304,630 $295,822
NPAs / Total Assets (%)0.84% 0.78% 0.75%
NPLs ($USD Thousands)$8,909 $8,489 $7,491
NPL / Total Loans (%)1.00% 0.94% 0.83%
ACL on Loans / Total Loans (%)0.96% 0.95% 0.94%
ACL on Loans / NPLs (%)95.33% 101.13% 113.46%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per share (quarterly)Q2 2024$0.19 $0.19 Maintained
Dividend per share (quarterly)Q3 2024$0.19 $0.19 Maintained
Dividend per share (quarterly)Q4 2024$0.19 $0.19 (payable Feb 26, 2025) Maintained

Note: The company did not provide quantitative revenue/margin/OpEx/OI&E/tax rate guidance in Q4 materials; only the dividend was announced .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Deposit cost managementRising deposit costs and mix shift to higher‑rate money market/time deposits; average deposit cost up to 2.67% (Q2), 2.74% (Q3) Average deposit cost declined to 2.58%; management intentionally reduced high‑cost balances Improving cost of funds
Technology initiatives“Major upgrade to online banking services” completed; positive client feedback (Q3) Continued efficiencies “through technological improvements” per CFO Ongoing execution
Balance sheet strategy (<$1B assets)Not explicitly highlighted in Q2/Q3Kept assets < $1B for flexibility and cost savings; reiterated as 2025 focus Strategic positioning
Credit quality / NPAsNPAs peaked at 0.90% in Q2; decreased to 0.78% in Q3; NPLs elevated YoY with specific secured loans identified NPAs down to 0.75%; NPLs down QoQ; ACL/NPL coverage improved; OREO eliminated Gradual improvement QoQ
Loan growth/mixLoan growth in commercial & multifamily; construction loans declining; floating/manufactured homes strong demand Continued commercial & multifamily growth; construction down; floating/manufactured steady Mix shift continues

Management Commentary

  • CEO Laurie Stewart: “The Bank ended the year with many positives, including a 15‑basis‑point increase in net interest margin… deposit costs… fell by 16 basis points. Additionally, nonperforming loans decreased by 11.8%… and for the first time in more than a decade, we have no OREO.” .
  • CFO Wes Ochs: “Notable progress was made in reducing funding costs during the quarter and in controlling expenses… We ended the year with the same balance sheet strategy… which helped reduce the Bank’s asset size below $1 billion… to provide… operational flexibility and continued cost savings in 2025.” .
  • CFO on drivers: NIM up from lower funding costs; loan yields increased via originations at higher rates and resets on variable‑rate loans .

Q&A Highlights

  • Conference call was scheduled for Jan 30, 2025; transcript was not available from our sources, so Q&A details and any guidance clarifications could not be reviewed .

Estimates Context

  • S&P Global Wall Street consensus estimates for Q4 2024 EPS and revenue were unavailable at time of retrieval; MarketBeat lists consensus as “N/A,” preventing a beat/miss assessment .
  • Implication: With NIM improvement and expense control driving EPS to $0.74, sell‑side models (where available) may need to reflect lower funding costs and QoQ NPL improvements; we cannot quantify revisions due to lack of consensus data .

Key Takeaways for Investors

  • Margin expansion and lower deposit costs are tangible drivers: NIM rose to 3.13% and average deposit cost fell to 2.58%, supporting earnings leverage near‑term .
  • Expense discipline improved operating efficiency (75.25% vs 84.31% QoQ), adding operating leverage even as asset size was reduced below $1B .
  • Credit risk is stabilizing QoQ (NPLs down, ACL/NPL coverage up; OREO eliminated), but remains higher YoY, warranting continued monitoring of floating homes and commercial/multifamily exposures .
  • Deposit dynamics require attention: the Q4 decline was largely strategic (reciprocal deposits off balance sheet), with expected return in Q1’25—watch deposit mix and pricing trends as rates change .
  • Loan mix continues to shift toward commercial & multifamily, while construction declines; this mix, coupled with variable‑rate resets, should support asset yields, but credit selection remains key .
  • Dividend maintained at $0.19, signaling confidence in capital and earnings stability despite macro rate pressures .
  • Near‑term trading: Positive narrative around NIM/expenses and OREO elimination could be supportive; medium‑term thesis hinges on sustained funding cost control, stable credit metrics, and deposit recapture/mix optimization .