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Sound Financial Bancorp, Inc. Announces Third Quarter 2014 Earnings

SEATTLE, Oct. 28, 2014 (GLOBE NEWSWIRE) -- Sound Financial Bancorp, Inc. (Nasdaq:SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $1.2 million for the quarter ended September 30, 2014, or $0.47 per diluted common share, as compared to net income of $994,000, or $0.38 per diluted common share, for the quarter ended September 30, 2013.

"We are pleased once again that our results show growth in both revenue and earnings per share. Our recently completed acquisition of three Columbia Bank branches complemented deposit growth throughout our existing retail branches during the quarter. We successfully completed the acquisition and data conversion simultaneously which allowed us to welcome our new clients immediately upon closing the transaction with a full suite of Sound Community Bank services to choose from," said Laurie Stewart, President and CEO. "Loan demand in our market areas remains steady and we are taking advantage of this economic improvement with measured portfolio growth."

In August, the Bank completed its acquisition of three retail branches on the North Olympic Peninsula in Sequim, Port Ludlow and Port Angeles. The acquisition increased the Bank's existing deposit market share in Sequim and Port Angeles and extended the Bank's footprint into Port Ludlow. The Bank acquired $22.2 million in deposits and $1.1 million in loans in the transaction. In conjunction with the transaction, Sound Community Bank closed their existing Sequim location at 541 N. 5th Ave. on September 12th, consolidating all operations in the Columbia facility at 645 W. Washington St. In Port Angeles, the former Columbia branch facility will close November 10 and all operations will be consolidated in the Sound Community Bank location at 110 N. Alder St. After the closings, the Bank will operate six retail offices, the virtual "EZ Branch" and one loan production office.

The Company also announced today that its Board of Directors declared a cash dividend on Sound Financial Bancorp common stock of $0.05 per share, payable on November 26, 2014 to stockholders of record as the close of business on November 12, 2014.

Highlights for the third quarter of 2014 include:

  • Annualized return on average assets was 1.07% for the current quarter, compared to 1.09% for the second quarter of 2014 and an increase of 13.5% from 0.96% for the third quarter of 2013;
  • Annualized Return on average equity was 10.09% for the current quarter, compared to 10.22% for the second quarter of 2014 and an increase of 16.8% from 8.64% for the third quarter of 2013;
  • Net interest income increased to $4.8 million for the current quarter, an increase of 3.0% compared to the second quarter of 2014 and 8.5% from the same period last year;
  • Provision for loan losses remained unchanged at $200,000 for both the current quarter and the second quarter of 2014, and decreased 55.6% from $450,000 for the third quarter of 2013;
  • Loans increased 6.8% to $417.4 million at September 30, 2014, compared to December 31, 2013 and increased 9.9% from September 30, 2013;
  • Deposits increased 15.7% to $403.2 million at September 30, 2014, compared to December 31, 2013 and increased 18.1% from September 30, 2013;
  • Annualized net charge-offs remained at 0.18% for both the current quarter and second quarter of 2014 and decreased 34 basis points from the same period last year; and
  • Tier 1 leverage ratio of 10.37% and a Total risk-based capital asset ratio of 14.16% at September 30, 2014.

Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on both a holding company and bank level at September 30, 2014.

Operating Results

Net interest income increased $139,000 to $4.8 million in the third quarter of 2014, compared to the second quarter of 2014 and increased $376,000 from $4.4 million in the third quarter of 2013. The increase was primarily a result of higher average loan balances.

The net interest margin was 4.43% for the third quarter of 2014, compared to 4.40% for the second quarter of 2014 and 4.55% in the third quarter of 2013. The decline in the net interest margin from a year ago was due to lower asset yields due to the continued low interest rate environment.

The provision for loan losses in the third quarter of 2014 was $200,000, which was the same as the second quarter of 2014. The provision for loan losses was $450,000 for the third quarter of 2013. The decline from a year ago was primarily due to lower charge-offs which was partially offset by increases to the provision related to higher average loan balances and changes in the composition of our loan portfolio.

Noninterest income increased $311,000, or 27.8%, to $1.4 million in the third quarter of 2014, compared to $1.1 million in the second quarter of 2014. Noninterest income increased $405,000, or 39.5%, from $1.0 million in the third quarter of 2013. The increase was primarily reflective of increased gains on sale of loans, mortgage servicing income and loan fees due to higher purchase activity in the home buying market.

Noninterest expense for the third quarter of 2014 was $4.2 million, compared to $3.8 million for the second quarter of 2014 and $3.6 million for the third quarter of 2013. The increase from the second quarter was primarily a result of increased operational and data processing expenses related to the branch acquisitions. The increase from a year ago was primarily from increased operational and data processing expenses related to the acquisition and expansion of online and mobile banking offerings and higher salaries and benefits due to an increase in full time equivalent employees and share based compensation expense partially offset by a $137,000 improvement in losses and expenses related to OREO.

The efficiency ratio for the third quarter of 2014 was 67.09%, compared to 63.60% for the second quarter of 2014 and 63.34% for the third quarter of 2013. The increase in the efficiency ratio compared to a year ago was primarily due to the higher noninterest expense partially offset by the increases in interest and noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets as of September 30, 2014 were $479.3 million, compared to $442.6 million at December 31, 2013 and $431.7 million a year ago. This increase was primarily a result of higher loan and cash balances which increased $26.4 million and $6.8 million, respectively, from December 31, 2013 and $37.6 and $8.2 million, respectively, from September 30, 2013.

The investment securities available-for-sale portfolio totaled $12.9 million at September 30, 2014, compared to $15.4 million at December 31, 2013 and $16.6 million at September 30, 2013. At September 30, 2014, the securities available-for-sale portfolio was comprised of $8.4 million of agency mortgage-backed securities (all issued by U.S. Government-sponsored entities), $2.5 million in private-label mortgage-backed securities and $2.0 million in municipal bonds.

Loans, excluding loans held-for-sale, totaled $417.4 million at September 30, 2014, compared to $390.9 million at December 31, 2013 and $379.8 million a year ago. At September 30, 2014, commercial and multifamily real estate loans accounted for 38.0% of the portfolio and residential real estate loans accounted for 30.9% of the portfolio. Home equity, manufactured, floating homes and other consumer loans accounted for 14.5% of the portfolio. Construction and land loans accounted for 10.8% of the portfolio and commercial and industrial loans accounted for the remaining 5.8% of the portfolio.

The weighted average yield on the loan portfolio was 5.19% for the third quarter of 2014, compared to 5.17% for the second quarter of 2014 and 5.43% for the third quarter of 2013.

Nonperforming assets ("NPAs"), which includes non-accrual loans, accruing loans 90 days and more delinquent, nonperforming troubled debt restructurings ("TDRs"), other real estate owned ("OREO") and other repossessed assets increased to $3.8 million, or 0.80% of total assets, at September 30, 2014 compared to $3.1 million, or 0.70% of total assets at December 31, 2013. NPAs were $2.9 million, or 0.67% of total assets, at September 30, 2013. This increase was primarily the result of a $1.5 million commercial property loan which was restructured during the third quarter of 2014. The following table summarizes our NPAs at September 30, 2014, December 31, 2013 and September 30, 2013:

Nonperforming Loans: At Sep 30, 2014 At Dec 31, 2013 At Sep 30, 2013
(in $000s, unaudited) Balance % of Total Balance % of Total Balance % of Total
One- to four- family $ 828 21.7% $ 772 24.9% $ 1,005 34.6%
Home equity loans 280 7.3 222 7.2 622 21.4
Commercial and multifamily 2,228 58.4 820 26.5 230 7.9
Manufactured 214 5.6 106 3.4 65 2.3
Other consumer 3 0.1 1 nm -- nm
Total nonperforming loans 3,553 93.2 1,921 62.0% 1,922 66.2%
OREO and Other Repossessed Assets:
One- to four- family 189 5.0 1,086 35.0 898 30.9
Manufactured 70 1.8 92 3.0 83 2.9
Total OREO and repossessed assets 259 6.8 1,178 38.0 981 33.8
Total nonperforming assets $ 3,812 100.0% $ 3,099 100.0% $ 2,903 100.0%
nm = not meaningful

The following table summarizes the allowance for loan losses:

For the Quarter Ended:
Allowance for Loan Losses Sep 30, Jun 30, Sep 30,
(in $000s, unaudited) 2014 2014 2013
Balance at beginning of period $ 4,191 $ 4,176 $ 4,129
Provision for loan losses during the period 200 200 450
Net charge-offs during the period (161) (185) (464)
Balance at end of period $ 4,230 $ 4,191 $ 4,115
Allowance for loan losses to total loans 1.01% 1.04% 1.08%
Allowance for loan losses to total nonperforming loans 119.05% 195.66% 214.10%

The increase in the allowance for loan losses at September 30, 2014, compared to the prior quarter and year ago quarter was due to increased average loan balances which were partially offset by lower charge-offs. Net charge-offs totaled $161,000 for the quarter ended September 30, 2014, compared to $185,000 for the second quarter of 2014 and $464,000 for the third quarter of 2013.

Deposits increased to $403.2 million at September 30, 2014, compared to $348.3 million at December 31, 2013 and $341.3 million at September 30, 2013. FHLB borrowings decreased to $20.7 million at September 30, 2014, compared to $43.2 million at December 31, 2013 and $40.4 million at September 30, 2013.

The total cost of deposits decreased to 0.60% during the quarter ended September 30, 2014, from 0.61% for the second quarter of 2014 and 0.63% during the quarter ended September 30, 2013. The total cost of borrowings was 0.64% during the quarter ended September 30, 2014, compared to 0.56% for the second quarter of 2014 and 0.60% for the quarter ended September 30, 2013.

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 and Port Ludlow. Sound Community Bank is a Fannie Mae Approved Lender and Seller/Servicer with an additional Loan Production Office in the Madison Park neighborhood of Seattle, Washington. For more information, please visit www.soundcb.com.

Forward Looking Statement Disclaimer

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains statements that are not historical or current fact and constitute forward-looking statements. In some cases, you can identify these statements by words such as "may", "might", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential", or "continue", the negative of these terms and other comparable terminology. 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 there are or may be important factors that could cause our actual results for 2014 and beyond to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially, include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, consumer and other loans, real estate values, competition, changes in accounting principles, policies or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

CONSOLIDATED INCOME STATEMENTS Quarter Ended Sequential Quarter Year over Year
(in $000s, unaudited) Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 % Change % Change
Interest income $ 5,395 $ 5,240 $ 4,985 3.0% 8.2%
Interest expense 612 596 578 2.7 5.9
Net interest income 4,783 4,644 4,407 3.0 8.5
Provision for loan losses 200 200 450 0.0 (55.6)
Net interest income after provision for loan losses 4,583 4,444 3,957 3.1 15.8
Noninterest income:
Service charges and fee income 805 700 564 15.0 42.7
Increase in cash surrender value of life insurance 87 86 78 1.2 11.5
Mortgage servicing income 202 80 76 152.5 165.8
Gain on sale of loans 184 110 37 67.3 397.3
Other noninterest income 153 144 271 6.3 (43.5)
Total noninterest income 1,431 1,120 1,026 27.8 39.5
Noninterest expense:
Salaries and benefits 1,998 1,958 1,858 2.0 7.5
Operations expense 1,155 1,009 825 14.5 40.0
Data processing 606 328 348 84.8 74.1
Losses and expenses related to OREO (12) 78 125 (115.4) (109.6)
Other noninterest expense 447 402 410 11.2 9.0
Total noninterest expense 4,194 3,775 3,566 11.1 17.6
Income before income taxes 1,820 1,789 1,417 1.7 28.4
Income tax expense 585 573 423 2.1 38.3
Net income $ 1,235 $ 1,216 $ 994 1.6 24.2
KEY FINANCIAL RATIOS (in $000s, unaudited)
Return on average assets 1.07% 1.09% 0.96% (1.8)% 11.5%
Return on average equity 10.09 10.22 8.64 (1.3) 16.8
Net interest margin 4.43 4.40 4.55 (0.7) (2.6)
Efficiency ratio 67.09 63.60 63.34 5.5 5.9
PER COMMON SHARE DATA Quarter Ended Sequential Quarter Year over Year
(in $000s, except per share data, unaudited) Sep 30, 2014 Jun 30, 2014 Sep 30, 2013 % Change % Change
Basic earnings per share $ 0.49 $ 0.48 $ 0.39 2.1% 25.6%
Diluted earnings per share $ 0.47 $ 0.47 $ 0.38 0.0 23.7
Weighted average basic shares outstanding 2,516 2,510 2,577 0.2 (2.4)
Weighted average diluted shares outstanding 2,609 2,601 2,634 0.3 (0.9)
Common shares outstanding at period-end 2,516 2,516 2,551 0.0 (1.4)
Book value per share $ 19.64 $ 19.15 $ 17.75 2.6 10.6
CONSOLIDATED BALANCE SHEET Sequential Quarter Year over Year
(in $000's, unaudited) Sep 30, 2014 Dec 31, 2013 Sep 30, 2013 % Change % Change
ASSETS
Cash and cash equivalents $ 22,139 $ 15,334 $ 13,961 44.4% 58.6%
Securities available-for-sale, at fair value 12,944 15,421 16,639 (16.1) (22.2)
Loans held-for-sale 2,490 130 1,664 1815.4 49.6
Loans:
One- to four- family residential 129,168 117,452 114,720 10.0 12.6
Home equity 34,782 35,155 35,317 (1.1) (1.5)
Commercial and multifamily 158,635 156,600 147,768 1.3 7.4
Construction and land 45,186 44,300 43,780 2.0 3.2
Manufactured homes 12,584 13,496 13,966 (6.8) (9.9)
Other consumer 13,000 10,255 9,393 26.8 38.4
Commercial business 23,996 13,668 14,842 75.6 61.7
Total loans, gross 417,351 390,926 379,786 6.8 9.9
Allowance for loan losses (4,230) (4,177) (4,115) 1.3 2.8
Loans, net 413,121 386,749 375,671 6.8 10.0
Accrued interest receivable 1,446 1,366 1,313 5.9 10.1
Bank-owned life insurance 11,321 11,068 10,950 2.3 3.4
OREO and other repossessed assets, net 259 1,178 981 (78.0) (73.6)
Mortgage servicing rights, at fair value 3,115 2,984 2,843 4.4 9.6
FHLB stock, at cost 2,247 2,314 2,336 (2.9) (3.8)
Premises and equipment, net 5,621 2,138 2,174 162.9 158.6
Other assets 4,576 3,929 3,196 16.5 43.2
Total assets $ 479,279 $ 442,611 $ 431,728 8.3 11.0
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposit, noninterest-bearing 44,219 34,594 34,575 27.8 27.9
Demand deposit, interest-bearing 98,739 70,639 56,320 39.8 75.3
Savings and money market 87,584 85,578 94,105 2.3 (6.9)
Time deposits 172,632 157,528 156,342 9.6 10.4
Total deposits 403,174 348,339 341,342 15.7 18.1
Accrued interest payable and other liabilities 5,958 4,547 4,082 31.0 46.0
Borrowings 20,738 43,221 40,381 (52.0) (48.6)
Total liabilities 429,870 396,107 385,805 8.5 11.4
Shareholders' Equity:
Common stock 25 25 26 0.0 (3.8)
Paid-in capital 23,218 23,829 24,370 (2.6) (4.7)
Unearned shared – ESOP (1,369) (1,369) (1,598) 0.0 (14.3)
Retained earnings 27,348 24,288 23,410 12.6 16.8
Accumulated other comprehensive loss 187 (269) (285) (169.5) (165.6)
Total shareholders' equity 49,409 46,504 45,923 6.2 7.6
Total liabilities and shareholders' equity $ 479,279 $ 442,611 $ 431,728 8.3 11.0
CREDIT QUALITY DATA Sequential Quarter Year over year
(in $000's, unaudited) Sep 30, 2014 Dec 31, 2013 Sep 30, 2013 % Change % Change
Nonaccrual loans $ 904 $ 558 $ 1,161 62.0% (22.1)%
Nonperforming TDRs and loans over 90 days past due and on accrual 2,649 1,363 761 94.4 248.1
Total nonperforming loans 3,553 1,921 1,922 85.0 84.9
OREO and other repossessed assets 259 1,178 981 (78.0) (73.6)
Total nonperforming assets 3,812 3,099 2,903 23.0 31.3
Performing TDRs on accrual 4,660 5,404 5,918 (13.8) (21.3)
Net charge-offs during the quarter 161 138 464 16.7 (65.3)
Provision for loan losses during the quarter 200 200 450 0.0 (55.6)
Allowance for loan losses 4,230 4,177 4,115 1.3 2.8
Classified assets 7,874 7,192 9,212 9.5 (14.5)
Allowance for loan losses to total loans 1.01% 1.07% 1.08% (5.6) (6.5)
Allowance for loan losses to total nonperforming loans 119.05% 217.44% 214.10% (45.2) (46.1)
Nonperforming loans to total loans 0.85% 0.49% 0.50% 73.5 70.0
Nonperforming assets to total assets 0.80% 0.70% 0.67% 14.3 19.4
OTHER PERIOD-END STATISTICS
(unaudited)
Sound Community Bank:
Loan to deposit ratio 102.47% 111.74% 110.10% (8.3)% (6.9)%
Noninterest-bearing deposits / total deposits 10.97 9.93 10.10 10.5 8.6
Leverage ratio 10.37 10.00 10.32 3.7 0.5
Tier 1 risk-based capital ratio 13.00 13.02 13.03 (0.2) (0.2)
Total risk-based capital ratio 14.16 14.26 14.28 (0.7) (0.8)

CONTACT: Media: Laurie Stewart President/CEO (206) 448-0884 x306 Financial: Matt Deines EVP/CFO (206) 448-0884 x305

Source:Sound Financial Bancorp, Inc.