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Sound Financial Bancorp, Inc. Earns Record Net Income of $4.7 Million in 2015

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SEATTLE, Jan. 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 $4.7 million for the year ended December 31, 2015, or $1.86 per diluted common share, compared to net income of $4.2 million, or $1.63 per diluted common share, for the year ended December 31, 2014.  Net income for the fourth quarter of 2015 was $1.2 million, or $0.46 per diluted share, compared to $802,000, or $0.31 per diluted share, for the fourth quarter ended December 31, 2014. Total assets were $540.8 million as of December 31, 2015 compared to $495.2 million as of December 31, 2014.

"2015 was a strong year for the Company and for the local economies in Western Washington where we do the majority of our business.   We are pleased with the growth of our loan portfolio, net interest income and overall earnings for the year," stated Sound Community Bank and Sound Financial Bancorp, Inc. President and CEO Laurie Stewart.

Highlights for the year ended December 31, 2015 include:

  • Net interest income was $19.7 million for the year, an increase of 3.8%, compared to $18.9 million for the year ended December 31, 2014.
  • Gain on sale of loans was $1.3 million for the year ended December 31, 2015, an increase of 108.5%, compared to $624,000 for the year ended December 31, 2014.
  • Provision for loan losses was $400,000 for the year, compared to $800,000 in for the year ended 2014. The ratio of charge-offs to average loans was 0.03% for 2015 compared to 0.14% in 2014.
  • Net loans increased 6.8% to $454.8 million at December 31, 2015, compared to $426.0 million as of December 31, 2014.
  • Deposits increased 7.9% to $440.0 million at December 31, 2015, compared to $407.8 million at December 31, 2014.
  • Return on average assets was 0.94% for the year ended December 31, 2015, compared to 0.93% for the year ended December 31, 2014.
  • Return on average equity was 8.85% for the year ended December 31, 2015, compared to 8.76% for the year ended December 31, 2014.

Highlights for the quarter ended December 31, 2015 include:

  • Net interest income was $5.3 million for the quarter ended December 31, 2015, an increase of 8.8%, compared to $4.9 million for the quarter ended December 31, 2014.
  • Net loans increased 5.5% to $454.8 million at December 31, 2015, compared to $431.1 million as of September 30, 2015.
  • Deposits increased 4.9% to $440.0 million at December 31, 2015, compared to $419.6 million at September 30, 2015.
  • Return on average assets was 0.90% for the quarter ended December 31, 2015, compared to 0.67% for the quarter ended December 31, 2014.

Both the holding company and bank level continue to maintain capital levels in excess of the requirement to be categorized as "well-capitalized" under the newly implemented Basel III and Dodd-Frank regulatory standards at December 31, 2015.

Operating Results

Net interest income increased $724,000 to $19.7 million for the year ended December 31, 2015, compared to $18.9 million for the year ended December 31, 2014. The increase was primarily a result of higher average loan balances, partially offset by lower average yield on loans. Average loans were $437.4 million for the year ended December 31, 2015 compared to $408.3 million for the year ended December 31, 2014.  The average yield on loans was 5.07% for the year ended December 31, 2015 compared to 5.18% for the year ended December 31, 2014.

Net interest margin was 4.16% for the year ended December 31, 2015, compared to 4.49% for the year ended December 31, 2014. The primary factors in the change in the net interest margin were lower loan yields combined with higher average balances in interest bearing cash accounts held by the bank in 2015.

The provision for loan losses for the year ended December 31, 2015 was $400,000, which represents a decrease of $400,000 or 50.0% from $800,000 in provision for loan losses for the year ended December 31, 2014.  The decline in provision for loan loss expense from a year ago was due to lower charge-offs and a decline in our level of non-performing assets, which was partially offset by higher ending loan balances and changes in the composition of our loan portfolio.

Noninterest income increased $890,000, or 20.4%, to $5.3 million for the year ended December 31, 2015, compared to $4.4 million for the year ended December 31, 2014.  The increase was primarily a result of higher mortgage servicing income and an increase in the gain on sale of loans in 2015 compared to 2014.  The gain on the sale of loans was $1.3 million for the year ended December 31, 2015 compared to $624,000 for the year ended December 31, 2014.  The increase in the gain was due to higher production of saleable mortgage loans combined with a higher average gain on sale in the 2015 period.

Noninterest expense increased $1.6 million to $17.5 million for the year ended December 31, 2015, compared to $15.9 million for the year ended December 31, 2014.  This increase was primarily due to increased salary and benefit expenses.  Salaries were higher as the result of additional administrative and compliance staff added during 2015.   Incentive compensation for loan originators was also higher due to higher loan production in 2015 compared to 2014.   Benefit expense was higher in the 2015 as the result of higher medical expense as well as higher expense related to our stock incentive and employee stock ownership plans as a result of an increase in the Company's stock price.

Our efficiency ratio for the year ended December 31, 2015 was 68.39%, compared to 66.97% for the year ended December 31, 2014.  The increase in the efficiency ratio compared to prior periods was primarily due to lower net interest income as a percentage of total assets and higher noninterest expense, partially offset by an increase in noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets as of December 31, 2015 were $540.8 million, compared to $495.2 million at December 31, 2014  This increase was primarily a result of higher loan and cash balances which increased $29.1 million and $19.0 million, respectively, from December 31, 2014. The investment securities available-for-sale portfolio totaled $6.7 million at December 31, 2015, compared to $11.5 million at December 31, 2014.  At December 31, 2015, the securities available-for-sale portfolio was comprised of $4.0 million of agency mortgage-backed securities (all issued by U.S. Government-sponsored entities), $428,000 in private-label mortgage-backed securities and $2.2 million in municipal bonds.

Loans, excluding loans held-for-sale, totaled $459.5 million at December 31, 2015, compared to $430.4 million at December 31, 2014.  We experienced growth in every loan category at December 31, 2015 compared to December 31, 2014, except for commercial business and home equity loans.  At December 31, 2015, commercial and multifamily real estate loans accounted for 38.5% of the portfolio, residential real estate loans accounted for 30.1% of the portfolio and home equity, manufactured, floating homes and other consumer loans accounted for 14.8% of the portfolio.  Construction and land loans accounted for 12.4% of the portfolio and commercial and industrial loans accounted for the remaining 4.2% of the portfolio at December 31, 2015.

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 $1.6 million, or 38.2%, to $2.6 million or 0.48% of total assets as of December 31, 2015, compared to $4.2 million or 0.84% of total assets as of December 31, 2014. The decrease from a year ago was primarily the result of a $1.5 million commercial property loan which was restructured during the third quarter of 2014 and is performing as agreed under the new loan terms.  The following table summarizes our NPAs:

Nonperforming Loans: At Dec 31, 2015 At Dec 31, 2014
(in thousands, unaudited) Balance % of Total Balance % of Total
One- to four- family $1,316   51.1% $1,512   36.3%
Home equity loans  428   16.6   386   9.3 
Commercial and multifamily  -   0.0   1,639   39.3 
Construction and land  -   0.0   81   1.9 
Manufactured  62   2.4   195   4.7 
Other consumer  -   0.0   29   0.7 
Total nonperforming loans  1,806   70.1   3,842   92.2 
OREO and Other Repossessed Assets:        
One- to four- family  159   6.2   269   6.5 
Commercial and Multifamily  600   23.3   -   0.0 
Manufactured  -   -   54   1.3 
Total OREO and repossessed assets  769   29.9   323   7.8 
Total nonperforming assets $2,575   100.0% $4,165   100.0%
                 

The following table summarizes the allowance for loan losses:

  For the Year Ended:
Allowance for Loan Losses Dec 31, Dec 31,
(in thousands, unaudited)  2015   2014 
Balance at beginning of period $  4,387  $  4,177 
Provision for loan losses during the period  400   800 
Net charge-offs during the period  (151)  (590)
Balance at end of period $  4,636  $  4,387 
     
Allowance for loan losses to total loans  1.01%  1.02%
Allowance for loan losses to total nonperforming loans  256.66%  114.19%
         

The increase in the allowance for loan losses at December 31, 2015, compared to the prior year was due to increased average loan balances offset by net lower charge-offs.  Net charge-offs totaled $151,000 for the year ended December 31, 2015, compared to net charge-offs of $590,000 million for the year ended December 31, 2014.

Deposits increased to $440.0 million at December 31, 2015, compared to $407.8 million at December 31, 2014.  Interest bearing demand deposits increased by $24.3 million or 23.6% during the year ended December 31, 2015.  FHLB borrowings were $40.4 million at December 31, 2015, compared to $30.6 million at December 31, 2014. The increase in borrowings was a result of the Company maintaining higher levels of on-balance sheet liquidity during the 2015 period.

The total cost of deposits increased to 0.63% during the year ended December 31, 2015, from 0.60% for the year ended December 31, 2014. The increase was primarily the result of the amortization cost of the purchase premium of deposit acquired in connection with branch purchases from a third party during the third quarter of 2014.  The total cost of borrowings was 0.43% during the year ended December 31, 2015 and 0.58% for the year ended December 31, 2014.

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 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
 Year over
Year
(in thousands, unaudited) Dec 31,
2015
 Sep 30,
2015
 Dec 31,
2014
 % Change % Change
Interest income $6,046  $5,576  $5,518   8.4%  9.6%
Interest expense  698   685   604   1.9   15.6 
Net interest income  5,348   4,891   4,914   9.3   8.8 
Provision for loan losses  -   100   200   nm   nm 
Net interest income after provision for loan losses  5,348   4,791   4,714   11.6   13.4 
Noninterest income:          
Service charges and fee income  647   641   562   0.9   15.1 
Increase in cash surrender value of life insurance  85   85   87   0.0   (2.3)
Mortgage servicing income  169   202   242   (16.3)  (30.2)
Fair value adjustment on mortgage servicing rights  63   (22)  (109)  (386.4)  (157.8)
Gain on sale of loans  155   360   254   (56.9)  (39.0)
Total noninterest income  1,119   1,266   1,036   (11.6)  8.0 
Noninterest expense:          
Salaries and benefits  2,511   2,251   2,255   11.6   11.4 
Operations expense  974   1,064   989   (8.5)  (1.5)
Data processing  483   378   492   27.8   (1.8)
Net (gain) loss on OREO and repossessed assets  133   96   59   38.5   125.4 
Other noninterest expense  577   593   431   (2.7)  33.9 
Total noninterest expense  4,678   4,382   4,226   6.8   10.7 
Income before income taxes  1,789   1,675   1,524   6.8   17.4 
Income tax expense  613   560   722   9.5   (15.1)
Net income $1,176  $1,115  $802   5.5%  46.6%


KEY FINANCIAL RATIOS Quarter Ended Sequential
Quarter
 Year over
Year
(in thousands, unaudited) Dec 31,
2015
 Sep 30,
2015
 Dec 31,
2014
 % Change % Change
Return on average assets  0.90%  0.89%  0.67%  1.1%  34.3%
Return on average equity  8.75   8.58   6.38   2.0   37.1 
Net interest margin  4.37   4.12   4.41   6.1   (0.9)
Efficiency ratio  69.77%  69.32%  69.75%  0.6%  0.0%


PER COMMON SHARE DATA Quarter Ended Sequential
Quarter
 Year over
Year
(in thousands, except per share data, unaudited) Dec 31,
2015
 Sep 30,
2015
 Dec 31,
2014
 % Change % Change
Basic earnings per share $0.48  $0.45  $0.32   6.7%  50.0%
Diluted earnings per share $0.46  $0.44  $0.31   4.5   48.4 
Weighted average basic shares outstanding  2,467   2,465   2,520   0.1   (2.1)
Weighted average diluted shares outstanding  2,561   2,552   2,601   0.4   (1.5)
Common shares outstanding at period-end  2,469   2,466   2,525   0.1   (2.2)
Book value per share $22.08  $21.45  $20.06   2.9%  10.1%



CONSOLIDATED INCOME STATEMENT
 Year Ended Year over
Year
(in thousands, unaudited) Dec 31,
2015
 Dec 31,
2014
 % Change
Interest income $22,409  $21,356   4.9%
Interest expense  2,752   2,423   13.6 
Net interest income  19,657   18,933   3.8 
Provision for loan losses  400   800   (50.0)
Net interest income after provision for loan losses  19,257   18,133   6.2 
Noninterest income:      
Service charges and fee income  2,605   2,570   1.3 
Increase in cash surrender value of life insurance  337   341   (0.9)
Mortgage servicing income  840   509   65.0 
Fair value adjustment on mortgage servicing rights  210   328   (36.0)
Loss on sale of securities  (31)  -  nm
Gain on sale of loans  1,301   624   108.5 
Total noninterest income  5,262   4,372   20.4 
Noninterest expense:      
Salaries and benefits  9,222   8,278   11.4 
Operations expense  3,995   4,045   (1.2)
Data processing  1,717   1,770   (3.0)
Net loss on OREO and repossessed assets  311   208   49.5 
Other noninterest expense  2,239   1,626   37.7 
Total noninterest expense  17,484   15,927   9.8 
Income before income taxes  7,035   6,578   6.9 
Income tax expense  2,289   2,338   (2.1)
Net income $4,746  $4,240   11.9%


KEY FINANCIAL RATIOS Year Ended  
(in thousands, unaudited) Dec 31,
2015
 Dec 31,
2014
 % Change
Return on average assets  0.94%  0.93%  1.4%
Return on average equity  8.85   8.76   1.0 
Net interest margin  4.16   4.49   (7.3)
Efficiency ratio  68.39%  66.97%  2.1%


PER COMMON SHARE DATA Year Ended  
(in thousands, except per share data, unaudited) Dec 31,
2015
 Dec 31,
2014
 % Change
Basic earnings per share $1.91  $1.69   13.3%
Diluted earnings per share $1.86  $1.63   14.4 
Weighted average basic shares outstanding  2,482   2,513   (1.2)
Weighted average diluted shares outstanding  2,545   2,602   (2.2)
Common shares outstanding at period-end  2,469   2,525   (2.2)
Book value per share $22.08  $20.06   10.0%


CONSOLIDATED BALANCE SHEET     Year over
Year
(in thousands, unaudited) Dec 31,
2015
 Dec 31,
2014
 % Change
ASSETS      
Cash and cash equivalents $48,264  $29,289   64.8%
Securities available-for-sale, at fair value  6,696   11,524   (41.9)
Loans held-for-sale  2,091   810   158.1 
Loans:      
One- to four- family residential  138,164   132,764   4.1 
Home equity  31,573   34,675   (8.9)
Commercial and multifamily  176,737   167,798   5.3 
Construction and land  57,043   46,279   23.3 
Manufactured homes  13,798   12,444   10.9 
Other consumer  22,859   16,875   35.5 
Commercial business  19,295   19,525   (1.2)
Total loans, gross  459,469   430,360   6.8 
Allowance for loan losses  (4,636)  (4,387)  5.7 
Loans, net  454,833   425,973   6.8 
Accrued interest receivable  1,608   1,497   7.4 
Bank-owned life insurance  11,746   11,408   3.0 
OREO and other repossessed assets, net  769   323   138.1 
Mortgage servicing rights, at fair value  3,249   3,028   7.3 
FHLB stock, at cost  2,212   2,224   (0.5)
Premises and equipment, net  5,335   5,555   (4.0)
Other assets  3,957   3,556   11.3 
Total assets $540,760  $495,187   9.2%
LIABILITIES AND SHAREHOLDERS' EQUITY      
Liabilities:      
Demand deposit, noninterest-bearing $51,370  $44,353   15.8%
Demand deposit, interest-bearing  127,392   103,048   23.6 
Savings and money market  92,878   88,469   5.0 
Time deposits  168,384   171,939   (2.1)
Total deposits  440,024   407,809   7.9 
Accrued interest payable and other liabilities  5,781   6,156   (6.1)
Borrowings  40,435   30,578   32.2 
Total liabilities  486,240   444,543   9.4 
Shareholders' Equity:      
Common stock  25   25   0.0 
Paid-in capital  24,304   23,552   3.2 
Unearned shared – ESOP  (912)  (1,140)  (20.0)
Retained earnings  30,939   28,024   10.4 
Accumulated other comprehensive loss  164   183   (10.4)
Total shareholders' equity  54,520   50,644   7.7 
Total liabilities and shareholders' equity $540,760  $495,187   9.2%


CREDIT QUALITY DATA
(in thousands, unaudited)
 Dec 31,
2015
 Dec 31,
2014
 Year over
year

% Change
Nonaccrual loans $1,203  $1,464   (17.8)%
Nonperforming TDRs and loans over 90 days past due and on accrual  603   2,378   (74.6)
Total nonperforming loans  1,806   3,842   (53.0)
OREO and other repossessed assets  769   323   138.1 
Total nonperforming assets  2,575   4,165   (38.2)
Performing TDRs on accrual  5,073   5,117   (0.9)
Net charge-offs during the year  151   590   (74.4)
Provision for loan losses during the year  400   800   (50.0)
Allowance for loan losses  4,636   4,387   5.7 
Allowance for loan losses to total loans  1.01%  1.02%  (1.0)
Allowance for loan losses to total nonperforming loans  256.66%  114.19%  124.8 
Nonperforming loans to total loans  0.40%  0.89%  (55.1)
Nonperforming assets to total assets  0.48%  0.84%  (42.9)
       
OTHER PERIOD-END STATISTICS      
(unaudited)      
Sound Community Bank:      
Loan to deposit ratio  103.37%  104.93%  (1.5)%
Noninterest-bearing deposits / total deposits  11.78   10.88   8.3 
Leverage ratio  10.19   10.19   0.0 
Tier 1 risk-based capital ratio  13.19   12.44   6.0 
Total risk-based capital ratio  14.34   13.57   5.7 
Total risk-weighted assets  403,334   388,498   3.8 
Average total assets for the year  502,189   457,748   9.7%
       
Media: Laurie Stewart President/CEO (206) 448-0884 x306 Financial: Matt Deines EVP/CFO (206) 448-0884 x305

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