Market Overview

Sound Financial Bancorp, Inc. Reports Record Net Income of $5.4 Million in 2016

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SEATTLE, Jan. 30, 2017 (GLOBE NEWSWIRE) --  Sound Financial Bancorp, Inc. (Nasdaq: SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $5.4 million for the year ended December 31, 2016, or $2.08 per diluted common share, compared to net income of $4.8 million, or $1.86 per diluted common share, for the year ended December 31, 2015.  Net income for the fourth quarter of 2016 was $1.6 million, or $0.60 per diluted share, compared to $1.2 million, or $0.48 per diluted share, for the quarter ended December 31, 2015. Total assets were $588.4 million as of December 31, 2016 compared to $540.8 million as of December 31, 2015.

The Company also announced today that the Board of Directors has declared a cash dividend on Company common stock of $0.10 per share, payable on February 13, 2017 to stockholders of record as of the close of business on February 27, 2017.

"The Board of Directors and management are proud of another year of strong performance," stated Sound Community Bank and Sound Financial Bancorp, Inc. President and CEO Laurie Stewart. "Year over year earnings grew more than 12% and resulted in a return on average equity of 9.4%.  We are pleased to share this success with our loyal shareholders by announcing a 33% increase in our quarterly dividend."

Highlights for the year ended December 31, 2016 include:

  Net interest income was $22.1 million for the year, an increase of 12.0%, compared to $19.7 million for the year ended December 31, 2015.
  Gain on sale of loans was $1.4 million for the year ended December 31, 2016; an increase of 5.0%, compared to $1.3 million for the year ended December 31, 2015.
  Provision for loan losses was $454,000 for the year, compared to $400,000 in for the year ended December 31, 2015. The ratio of charge-offs to average loans was 0.06% for 2016 compared to 0.03% in 2015.
  Net loans increased 8.9% to $495.2 million at December 31, 2016, compared to $454.8 million as of December 31, 2015.
  Deposits increased 6.3% to $467.7 million at December 31, 2016, compared to $440.0 million at December 31, 2015.
  Net interest margin ("NIM") remained strong at 4.24% for the year ended December 31, 2016 compared to 4.17% for the year ended December 31, 2015.
  Return on average assets was 0.97% for the year ended December 31, 2016, compared to 0.95% for the year ended December 31, 2015.
  Return on average equity was 9.37% for the year ended December 31, 2016, compared to 8.93% for the year ended December 31, 2015.

Highlights for the quarter ended December 31, 2016 include:



  Net interest income was $5.9 million for the quarter ended December 31, 2016, an increase of 8.7% compared to $5.4 million for the quarter ended September 30, 2016 and an increase of 9.2%, compared to $5.4 million for the quarter ended December 31, 2015.
  Net loans increased 4.9% to $495.2 million at December 31, 2016, compared to $472.2 million as of September 30, 2016.
  NIM increased 15 basis points to 4.34% for the quarter year ended December 31, 2016 compared to 4.19% for the quarter ended September 30, 2016.
  Deposits increased 0.9% to $467.7 million at December 31, 2016, compared to $463.5 at September 30, 2016.
  Return on average assets was 1.09% for the quarter ended December 31, 2016, compared to 1.05% and 0.94% for the quarters ended September 30, 2016 and December 31, 2015, respectively.
  Return on average equity was 10.92% for the quarter ended December 31, 2016, compared to 10.04% and 9.08% for the quarters ended September 30, 2016 and December 31, 2015, respectively.

Both the Company and Bank continue to maintain capital levels in excess of the regulatory requirements and the Bank continued to be categorized as "well-capitalized" at December 31, 2016.

Operating Results

Net interest income increased $2.4 million to $22.1 million for the year ended December 31, 2016, compared to $19.7 million for the year ended December 31, 2015. The increase was primarily a result of higher average loan balances and a higher average yield on loans. Average loan balances were $474.4 million for the year ended December 31, 2016 compared to $437.4 million for the year ended December 31, 2015.  The average yield on loans was 5.19% for the year ended December 31, 2016 compared to 5.08% for the year ended December 31, 2015.

Net interest margin was 4.24% for the year ended December 31, 2016, compared to 4.17% for the year ended December 31, 2015. The primary factors affecting net interest margin were higher average loan and investment yields combined with higher average balances in 2016. The average cost of deposits also decreased for the year ended December 31, 2016 to 0.60% compared to 0.63% for the year ended December 31, 2015.

The provision for loan losses for the year ended December 31, 2016 was $454,000, which represents an increase of $54,000 or 13.6% from $400,000 in provision for loan losses for the year ended December 31, 2015.  The increase in provision for loan losses from a year ago reflects a $137,000 increase in net charge-offs, the increase in net loans and changes in the composition of our loan portfolio.

Noninterest income decreased $81,000, or 1.5%, to $5.2 million for the year ended December 31, 2016, compared to $5.3 million for the year ended December 31, 2015.  This decrease was primarily a result of a decline in the fair value of mortgage servicing rights which was partially offset by higher mortgage servicing income and an increase in the gain on sale of loans in 2016 compared to 2015.  The gain on the sale of loans was $1.4 million for the year ended December 31, 2016 compared to $1.3 million for the year ended December 31, 2015.  The increase in the gain was due to higher production of saleable mortgage loans combined with a higher average gain on sale in the 2016 period.

Noninterest expense increased $1.2 million to $18.7 million for the year ended December 31, 2016, compared to $17.5 million for the year ended December 31, 2015 primarily due to increases in salary and benefits expenses.  Salary and benefits expenses increased over the prior year due to increased incentive compensation for loan originators due to higher loan production, higher health insurance premiums, and increased share-based compensation as a result of the increase in the Company's stock price.

Our efficiency ratio for the year ended December 31, 2016 was 68.19%, compared to 68.71% for the year ended December 31, 2015.  The improvement in the efficiency ratio compared to the prior year was primarily due to higher net interest income, partially offset by higher noninterest expense and lower noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets as of December 31, 2016 were $588.4 million, compared to $540.8 million at December 31, 2015  This increase was primarily a result of higher net loan and cash balances which increased $40.3 million and $6.3 million, respectively, from December 31, 2015. The investment securities available-for-sale portfolio totaled $6.6 million at December 31, 2016, compared to $6.7 million at December 31, 2015.  At December 31, 2016, the securities available-for-sale portfolio was comprised of $2.9 million of agency mortgage-backed securities (all issued by U.S. Government-sponsored entities), $347,000 in private-label mortgage-backed securities and $3.4 million in municipal bonds.

Gross loans, excluding loans held-for-sale, totaled $500.0 million at December 31, 2016, compared to $459.5 million at December 31, 2015.  We experienced growth in every loan category at December 31, 2016 compared to December 31, 2015, except for home equity loans.  At December 31, 2016, commercial and multifamily real estate loans accounted for 36.0% of the portfolio, one- to four- family residential loans accounted for 30.4% of the portfolio and consumer loans, consisting of home equity, manufactured, floating homes and other consumer loans accounted for 14.2% of the portfolio.  Construction and land loans accounted for 14.1% of the portfolio and commercial and industrial loans accounted for the remaining 5.3% of the portfolio at December 31, 2016.

Nonperforming assets ("NPAs"), which includes nonperforming loans, comprised of non-accrual loans, accruing loans 90 days and more delinquent, and nonperforming troubled debt restructurings ("TDRs"); and other real estate owned ("OREO") and other repossessed assets increased $1.6 million, or 55.9%, to $4.5 million or 0.77% of total assets as of December 31, 2016, compared to $2.9 million or 0.54% of total assets as of December 31, 2015.  

The following table summarizes our NPAs:

Nonperforming Loans:   At Dec 31,
2016
  At Dec 31,
2015
(Dollars in thousands, unaudited)   Balance

  % of
Total
  Balance

  % of Total

One- to four- family   $ 2,216   49.1 %   $ 1,640   56.6 %
Home equity loans     553   12.2       428   14.8  
Commercial and multifamily     219   4.8       -   0.0  
Construction and land     -   0.0       -   0.0  
Manufactured     119   2.6       62   2.1  
Commercial business     242   5.4       -   0.0  
Total nonperforming loans     3,349   74.1       2,130   73.5  
OREO and Other Repossessed Assets:                
One- to four- family     562   12.4       159   5.5  
Commercial and multifamily     600   13.3       600   20.7  
Manufactured     10   0.2       10   0.3  
Total OREO and repossessed assets     1,172   25.9       769   26.5  
Total nonperforming assets   $ 4,521   100.0 %   $ 2,899   100.0 %

The following table summarizes the allowance for loan losses:

    For the Year Ended:
Allowance for Loan Losses   Dec 31,   Dec 31,
(Dollars in thousands, unaudited)     2016       2015  
Balance at beginning of period   $ 4,636     $ 4,387  
Provision for loan losses during the period     454       400  
Net charge-offs during the period     (268 )     (151 )
Balance at end of period   $ 4,822     $ 4,636  
         
Allowance for loan losses to total loans     0.96 %     1.01 %
Allowance for loan losses to total nonperforming loans     143.98 %     217.65 %

The increase in the allowance for loan losses at December 31, 2016, compared to the prior year was due to increased loan balances and a higher level of nonperforming loans.  Net charge-offs totaled $268,000 for the year ended December 31, 2016, compared to net charge-offs of $151,000 for the year ended December 31, 2015.

Deposits increased 6.3% to $467.7 million at December 31, 2016, compared to $440.0 million at December 31, 2015, with increases incurring in all categories other than time deposits.  Noninterest bearing demand deposits increased $12.9 million or 25.3% to $63.8 million at December 31, 2016, compared to $50.9 million at December 31, 2015.  Interest bearing demand deposits and savings and money market accounts increased $24.0 million or 10.8% to $244.2 million at December 31, 2016, compared to $220.3 million at December 31, 2015.  Time deposits decreased $9.1 million or 5.4% to $159.7 million at December 31, 2016, compared to $168.9 million at December 31, 2015.   Borrowings from the Federal Home Loan Bank of Des Moines ("FHLB") were $54.8 million at December 31, 2016, compared to $40.4 million at December 31, 2015.  The increases in borrowings and deposits were used to fund loan demand and to support the Company's on-balance sheet liquidity during the 2016 period.

The total cost of deposits decreased to 0.60% during the year ended December 31, 2016, from 0.63% for the year ended December 31, 2015. The decrease was primarily the result of a reduction in the weighted average cost and averages balances of certificates of deposit and an increase in non-interest bearing demand deposit accounts. The total cost of borrowings was 0.58% during the year ended December 31, 2016 and 0.43% for the year ended December 31, 2015. The increase was the result of an increase in the overnight borrowing rate with the FHLB.

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: expected cost savings, synergies and other financial benefits from our the pending acquisition of the University Place branch from Sunwest Bank might not be realized within the expected time frames or at all, and costs or difficulties relating to integration matters might be greater than expected; 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
  Year over
Year
(Dollars in thousands, unaudited)   Dec 31,
2016
  Sep 30,
2016
  Dec 31,
2015
  % Change   % Change
Interest income   $ 6,653     $ 6,148   $ 6,090   8.2 %   9.2 %
Interest expense     763       730     697   4.5     9.5  
Net interest income     5,890       5,418     5,393   8.7     9.2  
Provision for loan losses     204       -     -   Nm   Nm
Net interest income after provision for loan losses     5,686       5,418     5,393   4.9     5.4  
Noninterest income:                    
Service charges and fee income     586       743     647   (21.1 )   (9.4 )
Increase in cash surrender value of life insurance     84       84     85   (0.0 )   (1.2 )
Mortgage servicing income     320       223     169   43.5     89.3  
Fair value adjustment on mortgage servicing rights     125       16     63   681.3     98.4  
Gain on sale of loans     338       477     155   (29.1 )   118.1  
Total noninterest income     1,453       1,543     1,119   (5.8 )   29.8  
Noninterest expense:                    
Salaries and benefits     2,693       2,632     2,512   2.3     7.2  
Operations expense     1,124       1,181     974   (4.8 )   15.4  
Data processing     520       434     484   19.8     7.4  
Net (gain) loss on OREO and repossessed assets     (2 )     3     133   (166.7 )   (101.5 )
Other noninterest expense     520       500     577   4.0     (9.9 )
Total noninterest expense     4,855       4,750     4,680   2.2     3.7  
Income before income taxes     2,284       2,211     1,832   3.3     24.7  
Income tax expense     721       757     612   (4.8 )   17.8  
Net income   $ 1,562     $ 1,454   $ 1,220   7.5 %   28.1 %


KEY FINANCIAL RATIOS   Quarter Ended   Sequential
Quarter
  Year over
Year
(unaudited)   Dec 31,
2016
  Sep 30,
2016
  Dec 31,
2015
  % Change

  % Change

Return on average assets   1.09 %   1.05 %   0.94 %   3.8 %   16.0 %
Return on average equity   10.92     10.04     9.08     8.8     20.3  
Net interest margin   4.36     4.19     4.37     4.1     (0.2 )
Efficiency ratio   65.70 %   68.19 %   69.77 %   (3.7 )%   (5.8 )%


PER COMMON SHARE DATA   Quarter Ended   Sequential
Quarter
  Year over
Year
(Shares in thousands, unaudited)   Dec 31,
2016
  Sep 30,
2016
  Dec 31,
2015
  % Change

  % Change

Basic earnings per share   $ 0.63   $ 0.58   $ 0.49   8.6 %   28.6 %
Diluted earnings per share   $ 0.60   $ 0.57   $ 0.48   5.3     25.0  
Weighted average basic shares outstanding     2,499     2,490     2,467   0.4     1.3  
Weighted average diluted shares outstanding     2,595     2,568     2,561   1.1     1.3  
Common shares outstanding at period-end     2,499     2,499     2,469   0.0     1.2  
Book value per share   $ 24.12   $ 23.34   $ 22.08   3.3 %   9.2 %



CONSOLIDATED INCOME STATEMENT
  Year Ended   Year over
Year
(Dollars in thousands, unaudited)   Dec 31,
2016
  Dec 31,
2015
  % Change
Interest income   $   24,985     $  22,453     11.3 %
Interest expense     2,919       2,752     6.1  
Net interest income     22,066       19,701     12.0  
Provision for loan losses     454       400     13.6  
Net interest income after provision for loan losses     21,612       19,301     12.0  
Noninterest income:            
Service charges and fee income     2,573       2,605     (1.2 )
Increase in cash surrender value of life insurance     336       338     (0.6 )
Mortgage servicing income     956       840     13.8  
Fair value adjustment on mortgage servicing rights     (49 )     210     (123.3 )
Loss on sale of securities     -       (31 )   Nm
Gain on sale of loans     1,366       1,301     5.0  
Total noninterest income     5,182       5,263     (1.5 )
Noninterest expense:            
Salaries and benefits     10,505       9,223     13.9  
Operations expense     4,361       3,995     9.2  
Data processing     1,784       1,717     3.9  
Net loss on OREO and repossessed assets     6       311     (98.1 )
Other noninterest expense     2,065       2,239     (7.8 )
Total noninterest expense     18,721       17,485     7.1  
Income before income taxes     8,073       7,079     14.0  
Income tax expense     2,695       2,289     17.7  
Net income   $   5,378     $   4,790     12.3 %


KEY FINANCIAL RATIOS   Year Ended    
(unaudited)   Dec 31,
2016
  Dec 31,
2015
  % Change

Return on average assets   0.97 %   0.95 %   2.1 %
Return on average equity   9.37     8.93     4.9  
Net interest margin   4.24     4.17     1.7  
Efficiency ratio   68.19 %   68.71 %   (0.8 )%


PER COMMON SHARE DATA   Year Ended    
(Shares in thousands, unaudited)   Dec 31,
2016
  Dec 31,
2015
  % Change

Basic earnings per share   $   2.16   $   1.92   12.5 %
Diluted earnings per share   $   2.08   $   1.86   11.8  
Weighted average basic shares outstanding     2,487     2,492   (0.2 )
Weighted average diluted shares outstanding     2,583     2,579   0.2  
Common shares outstanding at period-end     2,499     2,469   1.2  
Book value per share   $   24.12   $   22.08   9.2 %


CONSOLIDATED BALANCE SHEET           Year over
Year
(Dollars in thousands, unaudited)   Dec 31,
2016
  Dec 31,
2015
  % Change

ASSETS            
Cash and cash equivalents   $ 54,582      $   48,264     13.1 %
Securities available-for-sale, at fair value     6,604       6,696     (1.4 )
Loans held-for-sale     871       2,091     (58.3 )
Loans:            
One- to four- family residential     151,968       138,164     10.0  
Home equity     27,840       31,573     (11.8 )
Commercial and multifamily     180,216       176,737     2.0  
Construction and land     70,512       57,043     23.6  
Manufactured homes     15,455       13,798     12.0  
Other consumer     27,712       22,859     21.2  
Commercial business     26,298       19,295     36.3  
Total loans, gross     500,001       459,469     8.8  
Allowance for loan losses     (4,822 )     (4,636 )   4.0  
Loans, net     495,179       454,833     8.9  
Accrued interest receivable     1,816       1,608     12.9  
Bank-owned life insurance     12,082       11,746     2.9  
OREO and other repossessed assets, net     1,172       769     52.4  
Mortgage servicing rights, at fair value     3,561       3,249     9.6  
FHLB stock, at cost     2,840       2,212     28.4  
Premises and equipment, net     5,549       5,335     4.0  
Other assets     4,127       3,957     4.3  
Total assets   $ 588,383     $   540,760     8.8 %
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities:            
Demand deposit, noninterest-bearing   $ 63,741      $   50,873     25.3 %
Demand deposit, interest-bearing     150,327       127,392     18.0  
Savings and money market     93,921       92,879     1.1  
Time deposits     159,742       168,880     (5.4 )
Total deposits     467,731       440,024     6.3  
Accrued interest payable and other liabilities     5,585       5,781     (3.4 )
Borrowings     54,792       40,435     35.5  
Total liabilities     528,108       486,240     8.6  
Shareholders' Equity:            
Common stock     25       25     -  
Paid-in capital     23,979       23,002     4.2  
Unearned shared – ESOP     (683 )     (911 )   (25.1 )
Retained earnings     36,873       32,240     14.4  
Accumulated other comprehensive loss     81       164     (50.7 )
Total shareholders' equity     60,275       54,520     10.6  
Total liabilities and shareholders' equity   $ 588,383      $   540,760     8.8 %


CREDIT QUALITY DATA
(Dollars in thousands, unaudited)
  Dec 31,
2016
  Dec 31,
2015
  Year over
year

% Change
Nonaccrual loans   $   3,144     $   1,528     105.8 %
Nonperforming TDRs and loans over 90 days past due and on accrual     205       602     (65.9 )
Total nonperforming loans     3,349       2,130     57.2  
OREO and other repossessed assets     1,172       769     52.4  
Total nonperforming assets     4,521       2,899     56.0  
Performing TDRs on accrual     2,789       5,073     (45.0 )
Net charge-offs during the year     268       151     77.5  
Provision for loan losses during the year     454       400     13.5  
Allowance for loan losses     4,822       4,636     4.0  
Allowance for loan losses to total loans     0.96 %     1.01 %   (5.0 )
Allowance for loan losses to total nonperforming loans     143.98 %     217.65 %   (33.8 )
Nonperforming loans to total loans     0.67 %     0.47 %   42.6  
Nonperforming assets to total assets     0.77 %     0.54 %   42.6  
             
OTHER PERIOD-END STATISTICS   Dec 31,
2016
  Dec 31,
2016
  Year over
Year
% Change
(Dollars in thousands, unaudited)            
Sound Community Bank:            
Loan to deposit ratio     105.87 %     103.37 %   2.4 %
Noninterest-bearing deposits / total deposits     13.63       11.56     17.9  
Leverage ratio     9.99       10.19      
Tier 1 risk-based capital ratio     12.02       11.70      
Common Equity Tier 1 risk-based capital ratio     12.02       11.70      
Total risk-based capital ratio     13.07       12.74      
Total risk-weighted assets     477,548       453,345      
Average total assets for the year     551,815       503,186     9.7 %
             

Media:
Laurie Stewart
President/CEO
(206) 448-0884 x306

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

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