Sound Financial Bancorp, Inc. Q4 2022 Results

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