Sound Financial Bancorp, Inc. Reports 2nd Quarter Net Income of $1.2 Million or $0.48 Per Share

SEATTLE, July 28, 2015 (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 June 30, 2015, or diluted earnings per share of $0.48, as compared to net income of $1.2 million, or diluted earnings per share of $0.46, for the quarter ended March 31, 2015 and $1.2 million, or diluted earnings per share of $0.47, for the quarter ended June 30, 2014.

“For the first time in the bank’s history we exceeded $500 million in total assets at quarter end,” said Laurie Stewart, President and CEO of both Sound Financial Bancorp, Inc. and Sound Community Bank, “We are also pleased with our year to date return on assets of 1.00% and our annualized loan losses of just 5 basis points. The economies in the markets we serve continue to prosper and allow us to further develop relationships with both businesses and consumers.”

Highlights for the quarter include:

  • Total assets increased 2.4% to $503.4 million at June 30, 2015, from $491.7 million at March 31, 2015 and increased 7.4% from $468.9 million at June 30, 2014;
  • Net loans increased 2.7% to $430.0 million at June 30, 2015, from $418.7 million at March 31, 2015 and increased 7.6% from $399.7 million at June 30, 2014;
  • Deposits increased 0.6% to $418.6 million at June 30, 2015, from $416.2 million at March 31, 2015 and increased 12.0% from $373.9 million at June 30, 2014;
  • The gain on the sale of loans was $390,000 for the three months ended June 30, 2015 compared to $396,000 for the three months ended March 31, 2015.
  • The mortgage servicing asset increased in value by $381,000, or 13.2%, to $3.3 million at June 30, 2015, from $3.0 million at March 31, 2015 and increased in value by $278,000, or 9.3%, from $3.0 million at June 30, 2014;

Capital ratios exceeded regulatory requirements for a well-capitalized financial institution at June 30, 2015.

Operating Results

Net interest income increased $42,000, or 0.9%, to $4.7 million during the quarter ended June 30, 2015, compared to $4.7 million during the quarter ended March 31, 2015 and increased $86,000, or 1.9%, from $4.6 million during the quarter ended June 30, 2014. The change from the prior quarter was primarily a result of higher loan balances and lower average outstanding borrowings. The change from the comparable period a year ago was primarily a result of higher average loan balances and lower average outstanding borrowings partially offset by higher balances of interest-bearing deposits.

Interest expense on deposits was $661,000 for both the current and prior quarter and increased $109,000, or 19.7%, from $552,000 during the quarter ended June 30, 2014. The increase from 2014 was primarily the result of amortization of the deposit premium from deposits acquired in the third quarter of 2014. The total cost of borrowings decreased $9,000, or 32.1%, to $19,000 during the quarter ended June 30, 2015, from $28,000 during the quarter ended March 31, 2015 and decreased $25,000, or 56.8%, from $44,000 for the quarter ended June 30, 2014. This decrease is primarily due to lower average outstanding borrowings and a larger percentage of short-term borrowings compared to prior periods.

The net interest margin was 4.11% for the quarter ended June 30, 2015, compared to 4.06% for the quarter ended March 31, 2015 and 4.40% for the quarter ended June 30, 2014. The decline from the year ago period is primarily a result of lower loan yields.

The provision for loan losses in the quarter ended June 30, 2015 was $200,000, compared to $100,000 for the quarter ended March 31, 2015 and $200,000 for the quarter ended June 30, 2014. The increase from the prior quarter was primarily due to an increase to the loan portfolio during the current quarter.

Noninterest income increased $535,000, or 45.7%, to $1.7 million for the quarter ended June 30, 2015, compared to $1.2 million for the quarter ended March 31, 2015. Noninterest income increased $586,000, or 52.3%, from $1.1 for the quarter ended June 30, 2014. This increase was primarily the result of an appreciation in the market value of mortgage servicing rights for the linked quarter and an increase in the value of mortgage servicing rights and gain on sale of loans for the year ago period.

Noninterest expense increased $376,000, or 9.3%, to $4.4 million for the quarter ended June 30, 2015, compared to $4.0 million for the quarter ended March 31, 2015. The increase was primarily a result of increased operations, regulatory and occupancy expenses during the current period. Noninterest expense increased $625,000, or 16.6% for the quarter ended June 30, 2015, compared to $3.8 million for the quarter ended June 30, 2014, primarily from higher salaries and benefits, regulatory, occupancy and data processing expenses.

The efficiency ratio for the quarter ended June 30, 2015 was 68.21%, compared to 67.45% for the quarter ended March 31, 2015 and 63.60% for the quarter ended June 30, 2014. The increase in the efficiency ratio compared to the prior quarter was primarily due to higher operations, regulatory and occupancy expense, partially offset by higher noninterest income. The increase in the efficiency ratio compared to the year ago quarter was primarily due to higher salaries and benefits, operations, regulatory and occupancy expense, partially offset by higher net interest and noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets as of June 30, 2015 were $503.4 million, compared to $491.7 million at March 31, 2015 and $468.9 million as of June 30, 2014. The increase from the prior quarter was primarily a result of higher gross loan balances, partially offset by lower investment balances cash balances. This increase from a year ago was primarily a result of higher gross loan and cash balances which increased $30.7 million and $5.2 million, respectively, from June 30, 2014.

Investment securities available-for-sale totaled $7.9 million at June 30, 2015, compared to $8.7 million at March 31, 2015 and $14.1 million at June 30, 2014. The quarter over quarter decrease was a result of normal principal pay downs. The year over year decrease was due to normal principal paydowns and the sale of $1.7 million of non-agency mortgage-backed securities in the first quarter of 2015.

Gross loans totaled $434.6 million at June 30, 2015, compared to $423.1 million at March 31, 2015 and $403.9 million at June 30, 2014. At June 30, 2015, commercial and multifamily real estate loans accounted for 40.2% of the gross loan portfolio and residential real estate loans accounted for 30.2% of the portfolio. Home equity, manufactured, and other consumer loans accounted for 14.5% of the portfolio. Construction and land loans accounted for 10.2% of the portfolio and commercial and industrial loans accounted for the remaining 4.9% of the portfolio.

The weighted average yield on the loan portfolio was 5.01% for the quarter ended June 30, 2015, compared to 4.94% for the quarter ended March 31, 2015 and 5.17% for the quarter ended June 30, 2014.

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 decreased to $2.6 million, or 0.52% of total assets, at June 30, 2015 compared to $4.0 million, or 0.81% of total assets at March 31, 2015 and increased from $2.5 million, or 0.52% of total assets at June 30, 2014.

The following table summarizes our NPAs:

Nonperforming Loans: At June 30, 2015 At March 31, 2015 At June 30, 2014
(in $000s, unaudited) Balance % of Total Balance % of Total Balance % of Total
One- to four- family $ 1,294 49.5% $ 1,247 31.4% $ 934 38.0%
Home equity loans 503 19.2 445 11.2 401 16.3
Commercial and multifamily 249 9.5 1,621 40.8 764 31.0
Construction and land 41 1.6 82 2.0 - -
Manufactured homes 54 2.1 80 2.0 39 1.6
Other consumer 91 3.5 2 0.1 4 0.2
Total nonperforming loans 2,232 85.4 3,477 87.5 2,142 87.1
OREO and Other Repossessed Assets:
One- to four- family 325 12.4 433 10.9 232 9.4
Manufactured homes 57 2.2 66 1.6 87 3.5
Total OREO and repossessed assets 382 14.6 499 12.5 319 12.9
Total nonperforming assets $ 2,614 100.0% $ 3,976 100.0% $2,461 100.0%


The following table summarizes the allowance for loan losses:

For the Quarter Ended:
Allowance for Loan Losses June
30,
March
31,
June
30,
(in $000s, unaudited) 2015 2015 2014
Balance at beginning of period $ 4,436 $ 4,387 $4,176
Provision for loan losses during the period 200 100 200
Net charge-offs during the period (64) (51) (185)
Balance at end of period $ 4,572 $ 4,436 $4,191
Allowance for loan losses to total loans 1.05% 1.05% 1.04%
Allowance for loan losses to total nonperforming loans 204.75% 138.24% 195.66%


The allowance for loan losses to total loans remained at 1.05% for the quarter ended June 30, 2015, compared to the prior quarter and increased from 1.04% for the quarter ended June 30, 2014. Net charge-offs totaled $64,000 for the quarter ended June 30, 2015, compared to net charge-offs of $51,000 for the quarter ended March 31, 2015 and $185,000 for the quarter ended June 30, 2014.

Deposits increased to $418.6 million at June 30, 2015, compared to $416.2 million at March 31, 2015 and $373.9 million at June 30, 2014. FHLB borrowings increased to $26.3 million at June 30, 2015, compared to $18.4 million at March 31, 2015 and decreased from $39.9 million at June 30, 2014. An increase in total loans during the quarter ended June 30, 2015 led to the increase in borrowings.

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 may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated below or because of other important factors that we cannot foresee that could cause our actual results for 2015 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 described in the Company’s latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – which are available on our website at www.soundcb.com and on the SEC’s website at www.sec.gov.

CONSOLIDATED INCOME STATEMENTS Quarter Ended Sequential Quarter
% Change
Year over Year
% Change
(in $000s, unaudited) June 30, 2015 March 31, 2015 June 30, 2014
Interest income $ 5,410 $ 5,377 $ 5,240 0.6% 3.2%
Interest expense 680 689 596 (1.3) 14.1
Net interest income 4,730 4,688 4,644 0.9 1.9
Provision for loan losses 200 100 200 100.0 0.0
Net interest income after provision for loan losses 4,530 4,588 4,444 (1.3) 1.9
Noninterest income:
Service charges and fee income 671 645 700 4.0 (4.1)
Increase in cash surrender value of life insurance 84 84 86 0.0 (2.3)
Mortgage servicing income 214 255 80 (16.1) 167.5
Fair value adjustment on mortgage servicing rights 347 (178) 144 (294.9) 141.0
Loss on sale of securities - (31) - (100.0) nm
Gain on sale of loans 390 396 110 (1.5) 254.5
Total noninterest income 1,706 1,171 1,120 45.7 52.3
Noninterest expense:
Salaries and benefits 2,205 2,255 1,958 (2.2) 12.6
Operations expense 1,053 903 1,009 16.6 4.4
Data processing 454 403 328 12.7 38.4
Net loss on OREO and repossessed assets 10 72 78 (86.1) (87.2)
Other noninterest expense 678 391 402 73.4 38.4
Total noninterest expense 4,400 4,024 3,775 9.3 16.6
Income before provision for income taxes 1,836 1,735 1,789 5.8 2.6
Provision for income taxes 589 527 573 11.8 2.8
Net income $ 1,247 $ 1,208 $ 1,216 3.2% 2.5%

___

Nm = not meaningful

Quarter Ended Sequential Quarter
% Change
Year over Year
% Change
June 30, 2015 March 31, 2015 June 30, 2014
KEY FINANCIAL RATIOS (in $000s, unaudited)
Annualized return on average assets 1.01% 0.98% 1.09% 3.1% (7.3)%
Annualized return on average equity 9.56 9.31 10.22 2.7 (6.5)
Annualized net interest margin 4.11 4.06 4.40 1.2 (6.6)
Annualized efficiency ratio 68.21% 67.45% 63.60% 1.1% 7.2%


PER COMMON SHARE DATA Quarter Ended Sequential Quarter
% Change
Year over Year
% Change
(in 000s, except per share data, unaudited) June 30, 2015 March 31, 2015 June 30, 2014
Basic earnings per share $ 0.50 $ 0.48 $ 0.48 4.2% 4.2%
Diluted earnings per share $ 0.48 $ 0.46 $ 0.47 4.3 2.1
Weighted average basic shares outstanding 2,511 2,525 2,510 (1.5) (0.9)
Weighted average diluted shares outstanding 2,602 2,602 2,601 (1.4) (1.4)
Common shares outstanding at period-end 2,466 2,526 2,516 (2.4) (2.0)
Book value per share $ 21.02 $ 20.48 $ 19.15 2.6% 9.8%


CONSOLIDATED BALANCE SHEET Sequential Quarter
% Change
Year over Year
% Change
(in $000's, unaudited) June 30, 2015 March 31, 2015 June 30, 2014
ASSETS
Cash and cash equivalents $34,087 $ 35,223 $ 28,866 (3.2)% 18.1%
Securities available-for-sale, at fair value 7,901 8,717 14,082 (9.4) (43.9)
Loans held-for-sale 3,061 1,426 1,921 114.7 59.3
Total loans, gross 434,597 423,100 403,938 2.7 7.6
Allowance for loan losses (4,572) (4,436) (4,191) 3.1 9.1
Loans, net 430,025 418,664 399,747 2.7 7.6
Accrued interest receivable 1,494 1,448 1,391 3.2 7.4
Bank-owned life insurance, net 11,576 11,492 11,235 0.7 3.0
OREO and other repossessed assets, net 382 499 319 (23.4) 19.7
Mortgage servicing rights, at fair value 3,271 2,890 2,993 13.2 9.3
FHLB stock, at cost 1,645 2,200 2,270 (25.2) (27.5)
Premises and equipment, net 5,739 5,604 2,006 2.4 186.1
Other assets 4,266 3,545 4,110 20.3 3.8
Total assets 503,447 491,708 468,940 2.4% 7.4%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Interest-bearing deposits 367,172 368,431 328,984 (0.3)% 11.6%
Noninterest-bearing deposits 51,457 47,789 44,928 7.7 14.5
Total deposits 418,629 416,220 373,912 0.6 12.0
Accrued interest payable and other liabilities 6,730 5,296 6,942 27.1 (3.1)
Borrowings 26,256 18,417 39,899 42.6 (34.2)
Total liabilities 451,615 439,933 420,753 2.7% 7.3%
Shareholders' Equity:
Common stock 25 25 25 0.0% 0.0%
Paid-in capital 23,715 23,618 23,169 0.4 2.4
Unearned shares – ESOP (1,140) (1,140) (1,369) 0.0 (16.7)
Retained earnings 29,046 29,107 26,239 (0.2) 10.7
Accumulated other comprehensive gain 186 165 123 12.7 51.2
Total shareholders' equity 51,832 51,775 48,187 0.1 7.6
Total liabilities and shareholders' equity $ 503,447 $ 491,708 $ 468,940 2.4% 7.4%


CREDIT QUALITY DATA
(in $000's, unaudited)
June 30, 2015 March 31, 2015 June 30, 2014 Sequential Quarter
% Change
Year over year
% Change
Nonaccrual loans $1,422 $1,223 $678 16.3% 109.7%
Loans 90+ days past due and still accruing - - 122 nm (100.0)
Nonperforming TDRs 811 1,987 1,342 (59.2) (39.6)
Total nonperforming loans 2,233 3,210 2,142 (30.4) 4.2
OREO and other repossessed assets 382 499 319 (29.5) 19.7
Total nonperforming assets 2,615 3,709 2,461 (34.2) 6.3
Performing TDRs on accrual 5,981 4,868 4,905 22.9 21.9
Net charge-offs during the quarter 64 51 185 25.5 (65.4)
Provision for loan losses during the quarter 200 100 200 100.0 0.0
Allowance for loan losses 4,572 4,436 4,191 3.1 9.1
Allowance for loan losses to total loans 1.05% 1.05% 1.04% 0.0 1.0
Allowance for loan losses to total nonperforming loans 204.75% 138.24% 195.66% 48.1 4.6
Nonperforming loans to total loans 0.51% 0.82% 0.53% (37.8) (3.8)
Nonperforming assets to total assets 0.52% 0.81% 0.52% (35.8)% 0.0%
OTHER PERIOD-END STATISTICS
(unaudited)
Sound Community Bank:
Loan to deposit ratio 102.72% 100.59% 106.91% 2.1% (3.9)%
Noninterest-bearing deposits / total deposits 12.29 11.48 12.02 7.1 2.2
Leverage ratio 10.21 9.87 10.37 3.4 (1.5)
Common Equity Tier 1 risk-based capital ratio(1) 12.41 12.87 n/a (3.5) nm
Tier 1 risk-based capital ratio 12.41 12.87 12.99 (3.5) (4.4)
Total risk-based capital ratio 13.54% 14.04% 14.17% (3.5) (4.4)
Total risk-weighted assets 404,861 376,311 355,284 7.6% 13.9%
Sound Financial Bancorp, Inc.:
Average total assets for the quarter 492,846 492,472 448,034 0.1% 10.0%
Average total equity for the quarter 52,151 51,875 47,575 0.5% 9.6%

_________________
(1) The Common Equity Tier 1 (CET1) ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2015. Under BASEL III, the regulatory capital requirements to be considered well capitalized are 5% for Leverage-based capital, 6.5% for CET1, 8% for Tier 1 risk-based capital and 10% for total risk-based capital.


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

Source:Sound Financial Bancorp, Inc.