Sound Financial Bancorp, Inc. Announces Second Quarter 2014 Earnings

Quarterly Net Income Is $1.2 Million, or $0.47 per Share

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| Source: Sound Financial Bancorp, Inc.

SEATTLE, July 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 June 30, 2014, or $0.47 per diluted common share, as compared to net income of $1.1 million, or $0.43 per diluted common share, for the quarter ended June 30, 2013.

"As we mark the halfway point of 2014, we continue to execute on our business plan. Both loans and deposits increased this quarter demonstrating our commitment to the communities we serve," said President and CEO Laurie Stewart. "Adoption of new technologies such as Business Mobile Banking and Business EZ Deposit help us remain relevant in the marketplace while enhancing our commitment to sustainability. Earnings were up 23.2% quarter over quarter as a result of increased revenue with no significant increases in expense."

Sound Financial Bancorp, Inc. ranked 9th in the region in the Seattle Times' Best of the Northwest Top Companies 2013. In addition, the Puget Sound Business Journal ranked the Company 7th for increased net profit, 32nd for fastest growing companies, and 59th for largest public companies in the State of Washington.

In May, the Bank entered into an agreement with Columbia Bank to acquire three retail branches on the North Olympic Peninsula in Sequim, Port Ludlow and Port Townsend subject to regulatory approval from the FDIC and Washington State Department of Financial Institutions. The acquisition will increase the Bank's existing deposit market share in Sequim and Port Angeles and extend the Bank's footprint into Port Ludlow. The Bank anticipates acquiring approximately $29 million of deposits and $1 million of loans from the transaction.

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 August 27, 2014 to stockholders of record as the close of business on August 13, 2014.

Highlights for the second quarter of 2014 include:

  • Net interest income increased to $4.6 million, an increase of 1.1% compared to the first quarter of 2014 and 7.0% from the same period last year;
  • Provision for loan losses remained unchanged at $200,000 for both the current quarter and the first quarter of 2014, and decreased 55.6% from $450,000 for the second quarter of 2013;
  • Loans increased 3.3% to $403.9 million, compared to December 31, 2013 and 12.6% from June 30, 2013;
  • Deposits increased 7.3% to $373.9 million, compared to December 31, 2013 and 17.0% from June 30, 2013;
  • Nonperforming assets to total assets decreased to 0.50%, compared to 0.70% at December 31, 2013 and 0.75% at June 30, 2013;
  • Annualized net charge-offs decreased to 0.19%, a decrease of 1 basis point compared to the first quarter of 2014 and 29 basis points from the same period last year.
  • Tier 1 leverage ratio of 10.37%; Total risk-based capital of asset ratio of 14.44%

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

Operating Results

Net interest income increased $52,000 to $4.6 million in the second quarter of 2014, compared to the first quarter of 2014 and increased $302,000 from $4.3 million in the second quarter of 2013. The increase was primarily a result of higher average loan balances.

The net interest margin was 4.40% for the second quarter of 2014, compared to 4.41% for the first quarter of 2014 and 4.68% in the second quarter of 2013. The decline in the net interest margin was due to lower asset yields due to the continued low interest rate environment.

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

Noninterest income increased $335,000, or 42.7%, to $1.1 million in the second quarter of 2014, compared to $785,000 in the first quarter of 2014. Noninterest income decreased $238,000, or 17.5%, from $1.4 million in the second quarter of 2013. The increase from the first quarter was primarily reflective of higher gains on sale of loans and mortgage servicing income due to higher purchase activity due to seasonality in the home buying market. The decrease from a year ago was primarily reflective of reduced gain on sale of loans due to lower volumes and average premiums on loans sold.

Noninterest expense for the second quarter of 2014 was $3.8 million, compared to $3.7 million for the first quarter of 2014 and $3.6 million for the second quarter of 2013. The increase from the first quarter was primarily a result of increased professional and data processing expenses.   The increase from a year ago was primarily from higher salaries and benefits.

The efficiency ratio for the second quarter of 2014 was 63.60%, compared to 67.29% for the first quarter of 2014 and 59.74% for the second quarter of 2013. The increase in the efficiency ratio compared to a year ago was primarily due to higher salary and benefits as a result of a modest increase in FTEs and lower noninterest income as a result of lower gain on the sale of loans. These increases were partially offset by an increase in interest income and decrease in the provision for loan losses over the comparable periods.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets as of June 30, 2014 were $468.9 million, compared to $442.6 million at December 31, 2013 and $409.6 million a year ago. This increase was primarily a result of higher loan and cash balances which increased $13.0 and $13.5 million, respectively, from the end of 2013 and $45.3 and $17.1 million, respectively, from June 30, 2013. 

The investment securities available-for-sale portfolio totaled $14.1 million at June 30, 2014, compared to $15.4 million at December 31, 2013 and $17.0 million at June 30, 2013. At June 30, 2014, the securities available-for-sale portfolio was comprised of $9.5 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $2.6 million in private-label mortgage-backed securities and $2.0 million in municipal bonds.

Loans, excluding loans held-for-sale, totaled $403.9 million at June 30, 2014, compared to $390.9 million at December 31, 2013 and $358.7 million a year ago. At June 30, 2014, commercial real estate loans accounted for 37.9% of the portfolio and residential real estate loans accounted for 30.1% of the portfolio. Home equity, manufactured and other consumer loans accounted for 14.8% of the portfolio. Construction and land loans accounted for 11.7% of the portfolio and commercial and industrial loans accounted for the remaining 5.5% of the portfolio.

The weighted average yield on the loan portfolio was 5.17% for the second quarter of 2014, compared to 5.24% for the first quarter of 2014 and 5.66% for the second quarter of 2013.

Nonperforming assets ("NPAs"), which include non-accrual loans, accruing loans 90 days and more delinquent, other real estate owned ("OREO") and other repossessed assets decreased to $2.3 million, or 0.50% of total assets, at June 30, 2014 compared to $3.1 million, or 0.70% of total assets at December 31, 2013. NPAs were $3.1 million, or 0.75% of total assets, at June 30, 2013.

The following table summarizes our NPAs at June 30, 2014, December 31, 2013 and June 30, 2013:

Nonperforming Loans: At Jun 30, 2014 At Dec 31, 2013 At Jun 30, 2013
(in $000s, unaudited) Balance % of Total Balance % of Total Balance % of Total
One- to four- family $826 35.3% $772 24.9% $833 27.2%
Home equity loans 401 17.2 222 7.2 542 17.7
Commercial and multifamily 764 32.7 820 26.5 469 15.3
Manufactured 24 1.0 106 3.4 24 0.8
Other consumer 4 0.2 1 nm -- nm
Total nonperforming loans 2,019 86.4 1,921 62.0% 1,868 61.1%
OREO and Other Repossessed Assets:            
One- to four- family 232 9.9 1,086 35.0 1,131 37.0
Manufactured 87 3.7 92 3.0 59 1.9
Total OREO and repossessed assets 319 13.6 1,178 38.0 1,190 38.9
Total nonperforming assets $2,338 100.0% $3,099 100.0% $3,058 100.0%
nm = not meaningful

The following table summarizes the allowance for loan losses:

  For the Quarter Ended:
Allowance for Loan Losses Jun 30, Mar 30, Jun 30,
(in $000s, unaudited) 2014 2014 2013
Balance at beginning of period $4,176 $4,046 $4,046
Provision for loan losses during the period 200 200 450
Net charge-offs during the period (185) (201) (367)
Balance at end of period $4,191 $4,176 $4,129
       
Allowance for loan losses to total loans 1.04% 1.06% 1.15%
Allowance for loan losses to total nonperforming loans 207.58% 224.40% 221.04%

The increase in the allowance for loan losses at June 30, 2014, compared to the prior quarter and year ago quarter was due to increased average loan balances which were offset by improved credit metrics in our loan portfolio. Net charge-offs totaled $185,000 for the quarter ended June 30, 2014, compared to net charge-offs of $201,000 for the first quarter of 2014 and $367,000 for the second quarter of 2013.

Deposits increased to $373.9 million at June 30, 2014, compared to $348.3 million at December 31, 2013 and $319.5 million at June 30, 2013.   FHLB borrowings decreased to $39.9 million at June 30, 2014, compared to $43.2 million at December 31, 2013 and $40.5 million at June 30, 2013.

The cost of deposits decreased to 0.61% during the quarter ended June 30, 2014, from 0.63% for the first quarter of 2014 and 0.62% during the quarter ended June 30, 2013. The cost of borrowings was 0.56% during the quarter ended June 30, 2014, compared to 0.53% for the first quarter of 2014 and 0.59% for the quarter ended June 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 and Port Angeles. 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 2013 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.

           
        Sequential Year over
CONSOLIDATED INCOME STATEMENTS Quarter Ended Quarter Year
(in $000s, unaudited) Jun 30, 2014 Mar 31, 2014 Jun 30, 2013 % Change % Change
Interest income $5,240 $5,202 $4,886 0.7% 7.2%
Interest expense 596 610 544 (2.3) 9.6
Net interest income before provision for loan losses 4,644 4,592 4,342 1.1 7.0
Provision for loan losses 200 200 450 0.0 (55.6)
Net interest income after provision for loan losses 4,444 4,392 3,892 1.2 14.2
Noninterest income:          
Service charges and fee income 700 536 551 30.6 27.0
Increase in cash surrender value of life insurance 86 80 74 7.5 16.2
Mortgage servicing income 80 (47) 184 (270.2) (56.5)
Gain on sale of loans 110 76 310 44.7 (64.5)
Other noninterest income 144 140 239 2.9 (39.7)
Total noninterest income 1,120 785 1,358 42.7 (17.5)
Noninterest expense:          
Salaries and employee benefits 1,958 2,067 1,705 (5.3) 14.8
Operations expense 1,009 892 991 13.1 1.8
Data processing 328 344 318 (4.7) 3.1
Losses and expenses related to OREO 78 83 164 (6.0) (52.4)
Other noninterest expense 402 346 391 16.2 2.8
Total noninterest expense 3,775 3,732 3,569 1.2 5.8
Income before income taxes 1,789 1,445 1,681 23.8 6.4
Income tax expense 573 458 539 25.1 6.3
Net income $1,216 $987 $1,142 23.2% 6.5%
           
KEY FINANCIAL RATIOS (in $000s, unaudited)          
Return on average assets 1.09% 0.89% 1.14% 22.5% (4.4)%
Return on average equity 10.22 8.47 10.28 20.7 (0.6)
Net interest margin 4.40 4.41 4.68 (0.2) (6.0)
Efficiency ratio 63.60 67.29 59.74 (5.5) 6.5
           
        Sequential Year over
PER COMMON SHARE DATA Quarter Ended Quarter Year
(in $000s, except per share data, unaudited) Jun 30, 2014 Dec 31, 2013 Jun 30, 2013 % Change % Change
Basic earnings per share $0.48 $0.40 $0.44 20.0% 9.1%
Diluted earnings per share $0.47 $0.39 $0.43 20.5 9.3
Weighted average basic shares outstanding 2,510 2,532 2,587 (0.9) (3.0)
Weighted average diluted shares outstanding 2,601 2,597 2,638 0.2 (1.4)
Common shares outstanding at period-end 2,516 2,511 2,587 0.2 (2.7)
Book value per share $19.15 $18.52 $17.58 3.4 8.9
           
           
           
        Sequential Year over
CONSOLIDATED BALANCE SHEET       Quarter Year
(in $000's, unaudited) Jun 30, 2014 Dec 31, 2013 Jun 30, 2013 % Change % Change
ASSETS          
Cash and cash equivalents $28,866 $15,334 $11,760 88.2% 145.5%
Securities available-for-sale, at fair value 14,082 15,421 16,965 (8.7) (17.0)
Loans held-for-sale 1,921 130 2,078 1,377.7 (7.6)
Loans:          
One- to four- family residential 121,424 117,452 101,227 3.4 20.0
Home equity 35,222 35,155 35,055 0.2 0.5
Commercial and multifamily 153,036 156,600 148,231 (2.3) 3.2
Construction and land 47,172 44,300 38,409 6.5 22.8
Manufactured homes 12,975 13,496 14,670 (3.9) (11.6)
Other consumer 11,764 10,255 9,265 14.7 27.0
Commercial business 22,345 13,668 11,802 63.5 89.3
Total loans, gross 403,938 390,926 358,659 3.3 12.6
Allowance for loan losses (4,191) (4,177) (4,129) 0.3 1.5
Loans, net 399,747 386,749 354,530 3.4 12.8
Accrued interest receivable 1,391 1,366 1,333 1.8 4.4
Bank-owned life insurance 11,235 11,068 10,872 1.5 3.3
OREO and other repossessed assets, net 319 1,178 1,190 (72.9) (73.2)
Mortgage servicing rights, at fair value 2,993 2,984 2,670 0.3 12.1
FHLB stock, at cost 2,270 2,314 2,357 (1.9) (3.7)
Premises and equipment, net 2,006 2,138 2,233 (6.2) (10.2)
Other assets 4,110 3,929 3,577 4.6 14.9
Total assets $468,940 $442,611 $409,565 5.9 14.5
LIABILITIES AND SHAREHOLDERS' EQUITY          
Liabilities:          
Demand deposit, noninterest-bearing 46,979 34,594 33,970 35.8 38.3
Demand deposit, interest-bearing 85,355 70,639 27,966 20.8 205.2
Savings and money market 80,517 85,578 113,388 (5.9) (29.0)
Time deposits 161,061 157,528 144,190 2.2 11.7
Total deposits 373,912 348,339 319,514 7.3 17.0
Accrued interest payable and other liabilities 6,942 4,547 4,012 52.7 73.0
Borrowings 39,899 43,221 40,542 (7.7) (1.6)
Total liabilities 420,753 396,107 364,068 6.2 15.6
Shareholders' Equity:          
Common stock 25 25 26 0.0 (3.8)
Paid-in capital 23,169 23,829 24,873 (2.8) (6.9)
Unearned shared – ESOP (1,369) (1,369) (1,598) 0.0 (14.3)
Retained earnings 26,239 24,288 22,546 8.0 16.4
Accumulated other comprehensive loss 123 (269) (350) (145.7) (135.1)
Total shareholders' equity 48,187 46,504 45,497 3.6 5.4
Total liabilities and shareholders' equity $468,940 $442,611 $409,565 5.9 14.5
           
        Sequential Year over
CREDIT QUALITY DATA       Quarter year
(in $000's, unaudited) Jun 30, 2014 Dec 31, 2013  Jun 30, 2013  % Change % Change
Nonaccrual loans $678 $558 $1,481 21.5% (54.2)%
Nonperforming restructured loans and loans over 90 days past due and on accrual 1,341 1,363 387 (1.6) 246.5
Total nonperforming loans 2,019 1,921 1,868 5.1 8.1
OREO and other repossessed assets 319 1,178 1,190 (72.9) (73.2)
Total nonperforming assets 2,338 3,099 3,058 (24.6) (23.5)
Performing restructured loans on accrual 4,905 5,404 6,055 (9.2) (19.0)
Net charge-offs during the quarter 185 138 367 34.1 (49.6)
Provision for loan losses during the quarter 200 200 450 0.0 (55.6)
Allowance for loan losses 4,191 4,177 4,129 0.3 1.5
Classified assets 7,931 7,192 11,384 10.3 (30.3)
Allowance for loan losses to total loans 1.04% 1.07% 1.15% (2.8) (9.6)
Allowance for loan losses to total nonperforming loans 207.58% 217.44% 221.04% (4.5) (6.1)
Nonperforming loans to total loans 0.50% 0.49% 0.52% 2.0 (3.8)
Nonperforming assets to total assets 0.50% 0.70% 0.75% (28.6) (33.3)
           
OTHER PERIOD-END STATISTICS          
(unaudited)          
Sound Community Bank:          
Loan to deposit ratio 106.91% 111.74% 112.30% (4.3)% (4.8)%
Noninterest-bearing deposits / total deposits 12.56 9.93 10.60 26.5 18.5
Leverage ratio 10.37 10.00 10.22 3.7 1.5
Tier 1 risk-based capital ratio 13.24 13.02 12.90 1.7 2.6
Total risk-based capital ratio 14.44 14.26 14.15 1.3 2.0
           
Media:
Laurie Stewart
President/CEO
(206) 448-0884 x306

Financial:
Matt Deines
EVP/CFO
(206) 448-0884 x305