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Sound Financial Bancorp, Inc. Reports 2nd Quarter Net Income of $1.3 million or $0.49 per share

SEATTLE, July 28, 2016 (GLOBE NEWSWIRE) -- Sound Financial Bancorp, Inc. (Nasdaq:SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $1.3 million for the quarter ended June 30, 2016, or diluted earnings per share of $0.49, as compared to net income of $1.1 million, or diluted earnings per share of $0.43, for the quarter ended March 31, 2016 and $1.2 million, or diluted earnings per share of $0.48, for the quarter ended June 30, 2015.

“We are pleased with the Company’s performance for the first half of 2016. The Company continues to experience growth in net interest income and loan losses remain near all-time lows,” said Laurie Stewart, President and CEO of the Company and the Bank. Ms. Stewart continued, “The local economy is one of the strongest in the nation with robust job growth. This strong environment helps us continue to offer products to businesses and consumers that allow us to diversify our balance sheet and grow revenues.”

In addition, the Company announced today that the Board of Directors has declared a cash dividend on Company common stock of $0.075 per share, payable on August 26, 2016 to stockholders of record as of the close of business on August 12, 2016.

Highlights for the quarter include:

  • Net interest income increased $110,000, or 2.1%, to $5.4 million during the quarter ended June 30, 2016, compared to $5.3 million during the quarter ended March 31, 2016 and increased $704,000, or 14.9%, from $4.7 million during the quarter ended June 30, 2015
  • Total assets decreased 0.3% to $541.8 million at June 30, 2016, from $543.5 million at March 31, 2016 and increased 7.6% from $503.4 million at June 30, 2015
  • Net loans increased 0.5% to $459.8 million at June 30, 2016, from $457.7 million at March 31, 2016 and increased 6.9% from $430.0 million at June 30, 2015
  • Deposits decreased 0.9% to $443.9 million at June 30, 2016, from $448.1 million at March 31, 2016 and increased 6.0% from $418.6 million at June 30, 2015
  • The gain on the sale of loans was $341,000 for the three months ended June 30, 2016 compared to $210,000 for the three months ended March 31, 2016 and $390,000 at June 30, 2015
  • The mortgage servicing asset decreased in value by $69,000, or 2.2%, to $3.0 million at June 30, 2016, from $3.1 million at March 31, 2016 and decreased in value by $245,000, or 7.5%, from $3.3 million at June 30, 2015

Capital ratios at June 30, 2016 exceeded regulatory requirements for a well-capitalized financial institution.

Operating Results

Net interest income increased $110,000, or 2.1%, to $5.4 million during the quarter ended June 30, 2016, compared to $5.3 million during the quarter ended March 31, 2016 and increased $704,000, or 14.9%, from $4.7 million during the quarter ended June 30, 2015. The change from the prior quarter was primarily a result of higher average loan balances and loan yields. The higher yields resulted from a change to the loan mix during the most recent quarter, with an increase in the one-to four- family portfolio and a decrease in the commercial and multifamily portfolio. The change from the comparable period a year ago was primarily a result of higher average loan balances partially offset by higher borrowing rates and average balances. The weighted average yield on the loan portfolio was 5.17% for the quarter ended June 30, 2016, compared to 5.18% for the quarter ended March 31, 2016 and 5.01% for the quarter ended June 30, 2015.

Interest expense decreased $8,000, or 1.1%, to $709,000 during the quarter ended June 30, 2016, compared to $717,000 during the quarter ended March 31, 2016 and increased $29,000, or 4.3%, compared to the quarter ended June 30, 2015. Interest expense on deposits decreased $33,000, or 4.8% to $655,000 for the quarter ended June 30, 2016, compared to $688,000 for the quarter ended March 31, 2016 and decreased $6,000, or 0.9%, from $661,000 during the quarter ended June 30, 2015. The decrease from both comparative periods was primarily the result of lower overall deposit funding costs for the period ended June 30, 2016 which declined to 0.66% at June 30, 2016, as compared to 0.68 % and 0.70% at March 31, 2016 and June 30, 2015, respectively. The total cost of borrowings increased $25,000, or 86.2%, to $54,000 during the quarter ended June 30, 2016, from $29,000 during the quarter ended March 31, 2016 and increased $35,000, or 184.2%, from $19,000 for the quarter ended June 30, 2015. This increase was primarily a result of an increase in average borrowings in the current period compared to the prior periods and as compared to last year, an increase in overnight borrowing rates reflecting the recent increase in the federal funds rate. Average borrowings, consisting of Federal Home Loan Bank advances, increased to $38.9 million for the quarter ended June 30, 2016, compared to $22.5 million for the quarter ended March 31, 2016 and $15.1 during the quarter ended June 30, 2015.

Net interest margin was 4.26% for the quarter ended June 30, 2016, compared to 4.25% for the quarter ended March 31, 2016 and 4.11% for the quarter ended June 30, 2015. The increase from the year ago period was primarily a result of higher loan yields.

The provision for loan losses in the quarter ended June 30, 2016 was $100,000, compared to $150,000 for the quarter ended March 31, 2016 and $200,000 for the quarter ended June 30, 2015. The decrease from the prior quarter was primarily due to a net recovery of $29,000 during the quarter ended June 30, 2016.

Noninterest income increased $233,000, or 23.8%, to $1.2 million for the quarter ended June 30, 2016, compared to $1.0 million for the quarter ended March 31, 2016. Noninterest income decreased $496,000, or 29.1%, from $1.7 million for the quarter ended June 30, 2015. This increase from the preceding quarter was primarily the result of higher gains on the sale of mortgage loans. The decrease from the year ago period was due a reduction in in the fair market value of mortgage servicing rights as compared to an increase in value and a decrease in the gains on sale of mortgage loans. The negative fair value adjustment on mortgage servicing rights for the quarter ended June 30, 2016 was due to lower mortgage interest rates as compared to the same period last year.

Noninterest expense increased $196,000, or 4.4%, to $4.7 million for the quarter ended June 30, 2016, compared to $4.5 million for the quarter ended March 31, 2016. The increase was primarily a result of increased operations and data processing expenses during the current period. Noninterest expense increased $257,000, or 5.8% for the quarter ended June 30, 2016, compared to $4.4 million for the quarter ended June 30, 2015, primarily from higher salaries and benefits due to an increase in full time equivalent employees and operations expense, partially offset by lower regulatory and occupancy expense.

The efficiency ratio for the quarter ended June 30, 2016 was 69.51%, compared to 70.27% for the quarter ended March 31, 2016 and 68.21% for the quarter ended June 30, 2015. The decrease in the efficiency ratio compared to the prior quarter was primarily due to higher net interest income and higher noninterest income. The increase in the efficiency ratio compared to the year ago quarter was primarily due to higher salaries and benefits, operations expense and lower noninterest income, partially offset by higher net interest income.

Balance Sheet Review, Capital Management and Credit Quality

Total assets at June 30, 2016 were $541.8 million, compared to $543.5 million at March 31, 2016 and $503.4 million at June 30, 2015. The decrease from the prior quarter was primarily a result of lower cash balances. The increase from a year ago was primarily a result of higher gross loan and cash balances which increased $30.1 million and $11.1 million, respectively, from June 30, 2015.

Investment securities available-for-sale totaled $7.4 million at June 30, 2016, compared to $6.3 million at March 31, 2016 and $7.9 million at June 30, 2015. The quarter over quarter increase was a result of the purchase of $1.4 million in municipal bonds offset by normal principal pay downs. The year over year decrease was due to normal principal paydowns.

Gross loans totaled $464.6 million at June 30, 2016, compared to $462.4 million at March 31, 2016 and $434.6 million at June 30, 2015. At June 30, 2016, commercial and multifamily real estate loans accounted for 35.3% of the gross loan portfolio and one- to four-family loans accounted for 32.2% of the portfolio. Home equity, manufactured, and other consumer loans accounted for 15.4% of the portfolio. Construction and land loans accounted for 12.4% of the portfolio and commercial and industrial loans accounted for the remaining 4.7% of the portfolio.

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 $5.3 million, or 0.97% of total assets, at June 30, 2016 compared to $3.0 million, or 0.54% of total assets at March 31, 2016 and increased from $2.6 million, or 0.52% of total assets at June 30, 2015. The increase in the current period reflects the inclusion of a $2.3 million multifamily property in Port Angeles, WA, which was placed on non-accrual status during the three months ended June 30, 2016. There is a specific reserve for this loan totaling $389,000 as of June 30, 2016. This is our largest nonperforming loan as of June 30, 2016.

The following table summarizes our NPAs:

Nonperforming Loans: At June 30, 2016 At March 31, 2016 At June 30, 2015
(in $000s, unaudited) Balance % of Total Balance % of Total Balance % of Total
One- to four- family $ 1,244 23.6% $ 1,576 53.4% $ 1,295 49.5%
Home equity loans 661 12.6 435 14.8 503 19.2
Commercial and multifamily 2,144 40.7 - 0.0 249 9.5
Construction and land - 0.0 - 0.0 41 1.6
Manufactured homes 150 2.9 78 2.6 54 2.1
Other consumer 22 0.4 24 0.8 91 3.5
Commercial business 261 5.0 7 0.2 - -
Total nonperforming loans 4,482 85.2 2,120 71.8 2,233 85.4
OREO and Other Repossessed Assets:
One- to four- family 153 2.9 205 7.0 325 12.4
Commercial and multifamily 600 11.4 600 20.3 - -
Manufactured homes 27 0.5 27 0.9 57 2.2
Total OREO and other repossessed assets 780 14.8 832 28.2 382 14.6
Total nonperforming assets $ 5,262 100.0% $ 2,952 100.0% $ 2,614 100.0%

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) 2016 2016 2015
Balance at beginning of period $4,709 $4,636 $ 4,436
Provision for loan losses during the period 100 150 200
Net loan recoveries (charge-offs) during the period 29 (77) (64)
Balance at end of period $ 4,838 $ 4,709 $ 4,572
Allowance for loan losses to total loans 1.04% 1.02% 1.05%
Allowance for loan losses to total nonperforming loans 107.94% 222.12% 204.75%

The allowance for loan losses to total loans increased to 1.04% for the quarter ended June 30, 2016, compared to 1.02% for the quarter ended March 31, 2016 and from 1.05% for the quarter ended June 30, 2015. There was a net recovery of $29,000 for the quarter ended June 30, 2016, compared to net charge-offs of $77,000 for the quarter ended March 31, 2016 and $64,000 for the quarter ended June 30, 2015.

Deposits decreased to $443.9 million at June 30, 2016, compared to $448.1 million at March 31, 2016 and increased from $418.6 million at June 30, 2015. Borrowings increased to $35.6 million at June 30, 2016, compared to $31.4 million at March 31, 2016 and from $26.3 million at June 30, 2015. An increase in total loans and a decrease in total deposits during the quarter ended June 30, 2016 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

When used in filings by Sound Financial Bancorp, Inc. (the "Company”) with the Securities and Exchange Commission (the “SEC”), in the Company's 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 illustrated below or because of other important factors that we cannot foresee that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.

Factors which could cause actual results to differ materially, include, but are not limited to: changes in economic conditions; legislative changes; changes in policies by regulatory agencies; 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; competition; changes in management’s business strategies and other factors 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 at www.soundcb.com and on the SEC’s website at www.sec.gov.

The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.


CONSOLIDATED INCOME STATEMENTS Quarter Ended Sequential
Quarter

% Change
Year over
Year

% Change
(in $000s, unaudited) June 30,
2016
March 31,
2016
June 30,
2015
Interest income $ 6,143 $6,041 $ 5,410 1.7% 13.5%
Interest expense 709 717 680 (1.1) 4.3
Net interest income 5,434 5,324 4,730 2.1 14.9
Provision for loan losses 100 150 200 (33.3) (50.0)
Net interest income after provision for loan losses 5,334 5,174 4,530 3.1 17.7
Noninterest income:
Service charges and fee income 652 593 671 9.9 (2.8)
Increase in cash surrender value of life insurance 85 84 84 1.2 1.2
Mortgage servicing income 208 204 214 2.0 (2.8)
Fair value adjustment on mortgage servicing rights (76) (114) 347 (33.3) (121.9)
Gain on sale of loans 341 210 390 62.4 (12.6)
Total noninterest income 1,210 977 1,706 23.8 (29.1)
Noninterest expense:
Salaries and benefits 2,618 2,563 2,205 2.1 18.7
Operations expense 1,084 972 1,053 11.15 2.9
Data processing 444 386 454 15.0 (2.2)
Net loss on OREO and repossessed assets 6 - 10 nm (40.0)
Other noninterest expense 505 540 678 (6.5) (25.5)
Total noninterest expense 4,657 4,461 4,400 4.4 5.8
Income before provision for income taxes 1,887 1,690 1,836 11.7 2.8
Provision for income taxes 633 584 589 8.4 7.5
Net income $ 1,254 $ 1,106 $ 1,247 13.4% 0.6%
_______
Nm = not meaningful


Quarter Ended Sequential
Quarter

% Change
Year over
Year

% Change
June 30,
2016
March 31,
2016
June 30,
2015
KEY FINANCIAL RATIOS (unaudited)
Annualized return on average assets 0.94% 0.83% 1.01% 13.3% (6.9)%
Annualized return on average equity 9.04 8.05 9.56 13.3 (5.4)
Annualized net interest margin 4.26 4.25 4.11 0.2 3.6
Annualized efficiency ratio 69.51% 70.27% 68.21% (1.1)% 2.6%


PER COMMON SHARE DATA Quarter Ended Sequential
Quarter

% Change
Year over
Year

% Change
(in 000s, except per share data, unaudited) June 30,
2016
March 31,
2016
June 30,
2015
Basic earnings per share $ 0.51 $ 0.45 $ 0.50 13.3% 2.0%
Diluted earnings per share $ 0.49 $ 0.43 $ 0.48 14.0 2.1
Weighted average basic shares outstanding 2,481 2,478 2,511 0.1 (1.2)
Weighted average diluted shares outstanding 2,579 2,572 2,602 0.3 (0.9)
Common shares outstanding at period-end 2,481 2,481 2,466 - 0.6
Book value per share $ 22.90 $ 22.39 $ 21.02 2.3% 8.9%


CONSOLIDATED BALANCE SHEET Sequential
Quarter

% Change
Year over
Year

% Change
(in $000's, unaudited) June 30,
2016
March 31,
2016
June 30,
2015
ASSETS
Cash and cash equivalents $45,187 $ 49,679 $34,087 (9.0)% 32.6%
Securities available-for-sale, at fair value 7,393 6,286 7,901 17.6 (6.4)
Loans held-for-sale 687 1,186 3,061 (42.1) (77.6)
Total loans, gross 464,648 462,432 434,597 0.5 6.9
Allowance for loan losses (4,838) (4,709) (4,572) 2.7 5.8
Loans, net 459,810 457,723 430,025 0.5 6.9
Accrued interest receivable 1,592 1,595 1,494 (0.2) 6.6
Bank-owned life insurance, net 11,914 11,830 11,576 0.7 2.9
OREO and other repossessed assets, net 780 832 382 (6.3) 104.2
Mortgage servicing rights, at fair value 3,026 3,095 3,271 (2.2) (7.5)
FHLB stock, at cost 2,073 1,903 1,645 8.9 26.0
Premises and equipment, net 5,088 5,252 5,739 (3.1) (11.3)
Other assets 4,209 4,157 4,266 1.3 (1.3)
Total assets 541,759 543,538 503,447 (0.3) 7.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Interest-bearing deposits 384,323 393,473 367,172 (2.3) 4.7
Noninterest-bearing deposits 59,544 54,648 51,457 9.0 15.7
Total deposits 443,867 448,121 418,629 (0.9) 6.0
Accrued interest payable and other liabilities 5,468 8,489 6,774 (35.6) (19.3)
Borrowings 35,613 31,374 26,256 13.5 35.6
Total liabilities 484,948 487,984 451,659 (0.6) 7.4
Shareholders' equity:
Common stock 25 25 25 - -
Paid-in capital 23,247 23,110 22,515 2.8 5.5
Unearned shares – ESOP (911) (911) (1,140) - (20.1)
Retained earnings 34,228 33,160 30,202 1.7 11.7
Accumulated other comprehensive gain 222 170 186 30.6 19.4
Total shareholders' equity 56,811 55,554 51,788 2.3 9.7
Total liabilities and shareholders' equity $ 541,759 $ 543,538 $ 503,447 (0.3)% 7.6%


CREDIT QUALITY DATA
(in $000's, unaudited)
June 30,
2016
March 31,
2016
June 30,
2015
Sequential
Quarter

% Change
Year over
year

% Change
Nonaccrual loans $3,777 $1,377 $1,422 174.3% 165.6%
Loans 90+ days past due and still accruing - 17 - - nm
Nonperforming TDRs 705 726 811 (2.9) (13.1)
Total nonperforming loans 4,482 2,120 2,233 111.4 100.7
OREO and other repossessed assets 780 832 382 (6.3) 104.2
Total nonperforming assets 5,262 2,952 2,615 78.3 101.2
Performing TDRs on accrual 4,764 4,808 5,981 (0.9) (20.3)
Net (recoveries) charge-offs during the quarter (29) 77 64 (137.7) (145.3)
Provision for loan losses during the quarter 100 150 200 (33.3) (50.0)
Allowance for loan losses 4,838 4,709 4,572 2.7 5.8
Allowance for loan losses to total loans 1.04% 1.02% 1.05% 2.0 (1.0)
Allowance for loan losses to total nonperforming loans 107.94% 222.12% 204.75% (51.4) (47.3)
Nonperforming loans to total loans 0.96% 0.46% 0.51% 108.7 88.2
Nonperforming assets to total assets 0.97% 0.54% 0.52% 79.6% 86.5%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Sound Community Bank:
Loan to deposit ratio 103.61% 102.14% 102.72% 1.4% 0.9%
Noninterest-bearing deposits / total deposits 13.41 12.14 12.29 10.5 9.1
Leverage ratio 10.14 10.14 10.21 0.0 (0.7)
Common Equity Tier 1 risk-based capital ratio(1) 12.80 12.12 12.41 5.6 (0.2)
Tier 1 risk-based capital ratio 12.80 12.12 12.41 5.6 (0.2)
Total risk-based capital ratio 13.96 13.21 13.54 5.7 0.4
Total risk-weighted assets $431,605 $447,038 $404,861 (3.5)% 6.6%
Sound Financial Bancorp, Inc.:
Average total assets for the quarter $545,645 $535,271 $492,846 1.9% 10.7%
Average total equity for the quarter 56,611 55,037 52,151 2.1% 8.6%
________
(1) The Common Equity Tier 1 (CET1) ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2016. 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.