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Section 1: 8-K (8-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) July 26, 2018

SOUND FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
 
001-35633
 
45-5188530
(State or other jurisdiction
of incorporation)
 
(Commission File No.)
 
(IRS Employer
Identification No.)
 
2400 3rd Avenue, Suite 150, Seattle, Washington
 
98121
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (206) 448-0884
 
 
 
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicated by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
 


Items to be Included in this Report
 
Item 2.02.
Results of Operations and Financial Condition

On July 26, 2018 Sound Financial Bancorp, Inc. (the “Company”) issued a press release announcing Second Quarter 2018 financial results and that its Board of Directors declared a cash dividend on Sound Financial Bancorp, Inc. common stock of $0.14 per share, payable on August 24, 2018 to stockholders of record on the close of business on August 10, 2018. A copy of the press release is attached hereto as Exhibits 99.1 to this Current Report and is incorporated herein by reference.
 
Item 9.01.
Financial Statements and Exhibits.

(d)
Exhibits

99.1
Press Release dated July 26, 2018
 
2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 
SOUND FINANCIAL BANCORP, INC.
     
Date:
July 27, 2018
By:
/s/ Laura Lee Stewart
     
Laura Lee Stewart, President and CEO
 
 
3

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Section 2: EX-99.1 (EXHIBIT 99.1)


Exhibit 99.1
Sound Financial Bancorp, Inc. Reports Net Income of $2.0 Million for
Second Quarter 2018
Board Declares quarterly cash dividend of $0.14 per share
 
Seattle, Wash., July 26, 2018 -- Sound Financial Bancorp, Inc. (Nasdaq: SFBC), the holding company (the “Company”) for Sound Community Bank (the “Bank”), today reported net income of $2.0 million for the quarter ended June 30, 2018, or diluted earnings per share of $0.77, as compared to net income of $1.6 million, or diluted earnings per share of $0.63 for the quarter ended March 31, 2018 and $1.3 million, or diluted earnings per share of $0.50, for the quarter ended June 30, 2017.

The Company also announced today that the Board of Directors has declared a cash dividend on Company common stock of $0.14 per share, payable on August 24, 2018 to stockholders of record as of the close of business on August 10, 2018.

“Our loan portfolio continues to achieve significant  growth in  both residential and commercial loans, and we continue to focus on deposit growth as our  main funding source,” said Laurie Stewart, President and CEO of the Company and the Bank.  “We also continue to maintain our strong net interest margin despite  a rising interest rate environment,” concluded Ms. Stewart.
 
Highlights for the quarter ended June 30, 2018 include:

Loans increased 5.5% to $590.8 million at June 30, 2018, from $560.0 million at March 31, 2018, and increased 19.6% from $493.9 million at June 30, 2017;
Total deposits increased 1.9% to $539.4 million at June 30, 2018, from $529.2 million at March 31, 2018, and increased 9.3% from $493.7 million at June 30, 2017;
Total assets increased 4.0% to $686.2 million at June 30, 2018, from $659.5 million at March 31, 2018 and increased 16.7% from $588.3 million at June 30, 2018;
Net interest income increased 7.3% to $6.9 million for the quarter ended June 30, 2018, from $6.5 million for the quarter ended March 31, 2018, and increased 20.6% from $5.8 million for the quarter ended June 30, 2017;
Net interest margin (“NIM”) increased to 4.31% for the quarter ended June 30, 2018, compared to 4.26% for the quarter ended March 31, 2018 and 4.27% for the quarter ended June 30, 2017;
Nonperforming assets increased $81,000, or 3.2%, to $2.6 million at June 30, 2018, from $2.6 million at March 31, 2018 and decreased $1.6 million, or 37.3%, from $4.2 million at June 30, 2017; and
Provision for loan losses was $150,000 for the quarter ended June 30, 2018, compared to $100,000 for the quarter ended March 31, 2018.  There was no provision for the quarter ended June 30, 2017.

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 June 30, 2018.

Operating Results

Net interest income increased $472,000, or 7.3%, to $6.9 million for the quarter ended June 30, 2018, compared to $6.5 million for the quarter ended March 31, 2018 and increased $1.1 million, or 20.6%, from $5.8 million for the quarter ended June 30, 2017.  The change from the prior quarter and the same quarter one year ago was primarily a result of higher interest income partially offset by an increase in interest expense.
 
1

Interest income increased $671,000, or 9.0%, to $8.2 million for the second quarter of 2018 compared to $7.5 million for the first quarter of 2018 and increased $1.7 million, or 25.3%, from $6.5 million for the second quarter of 2017.  The increase in interest income from loans in both periods was due to higher average loan balances, as loan originations exceeded loan repayments during the period, and higher loan yields.  Average loan balances were $576.7 million for the quarter ended June 30, 2018 compared to $549.7 million for the quarter ended March 31, 2018 and $488.2 million for the quarter ended June 30, 2017.  The average yield on loans was 5.48% for the quarter ended June 30, 2018 compared to 5.27% for the quarter ended March 31, 2018 and 5.21% for the quarter ended June 30, 2017.  Interest income on the investment portfolio and cash and cash equivalents increased due to the rise in market interest rates during the second quarter of 2018 compared to one year ago.

Interest expense increased $199,000, or 19.5%, to $1.2 million for the quarter ended June 30, 2018, compared to $1.0 million for the quarter ended March 31, 2018 and increased $459,000, or 60.2%, compared to $763,000 for the quarter ended June 30, 2017.  The increase from the sequential quarter and the same quarter one year ago was primarily due to the increase in the average balances and cost of FHLB borrowings.  The average balance of borrowings increased $18.7 million, or 38.0%, to $67.9 million at June 30, 2018 from $49.2 million at March 31, 2018.  The average balance of borrowings increased $42.6 million, or 168.0%, compared to June 30, 2017.  The cost of borrowings increased to 2.01% for the quarter ended June 30, 2018 compared to 1.73% for the first quarter of 2018 and was 1.18% for the second quarter of 2017.  We utilize borrowings to supplement our deposits to support loan growth.  The rise in the cost of borrowings was the result of the increase in the target federal funds rate over the past quarter and past year.  Interest expense on deposits increased $71,000, or 8.8%, to $881,000 for the quarter ended June 30, 2018, compared to $810,000 for the quarter ended March 31, 2018 and increased $193,000, or 28.1%, from $688,000 during the quarter ended June 30, 2017.  The increase in deposit expense was driven by both the rise in the average balance of deposits as well as the cost of deposits.  The average cost of deposits was 0.67% for the three months ended June 30, 2018 compared to 0.63% for the first quarter of 2018 and 0.58% for the second quarter of 2017.

The net interest margin increased to 4.31% for the quarter ended June 30, 2018, compared to 4.26% for the quarter ended March 31, 2018 and 4.27% for the quarter ended June 30, 2017.  The increase was due to higher average loan yields partially offset by higher funding costs as a result of the increase in the average cost and balance of both deposits and FHLB borrowings.

We recorded a provision for loan losses of $150,000 for the quarter ended June 30, 2018, compared to $100,000 for the quarter ended March 31, 2018.  There was no provision recorded for the quarter ended June 30, 2017.  The increase in the provision from the previous periods was primarily due to the increase in the balance of the total loan portfolio which increased 5.5% and 19.6% from the previous quarter and second quarter of 2017,  respectively.

Noninterest income during the second quarter of 2018 remained relatively unchanged at $1.1 million compared to the first quarter of 2018.  Noninterest income increased $107,000, or 10.9%, to $1.1 million for the quarter ended June 30, 2018, compared to the same quarter in 2017.  This increase was primarily the result of an $82,000, or 31.4%, increase in net gain on sale of loans as well as a positive $58,000 fair value adjustment on mortgage servicing rights, partially offset by a $31,000 decrease in service charges and fee income.

Noninterest expense remained stable, decreasing slightly by $32,000, or 0.6%, to $5.4 million for the quarter ended June 30, 2018, compared to the sequential quarter.  The decrease was primarily a result of a one-time adjustment to salaries and benefits due to the departure of an executive officer, as previously disclosed, as well as a decrease in expenses related to our operations.  In particular, reductions to accruals for marketing and professional fees were partially offset by an increase in audit fees.  Occupancy expense increased due to a one-time adjustment to recognize straight-line rent expense over the life of a lease.

Noninterest expense increased $605,000, or 12.6% to $5.4 million during the quarter ended June 30, 2018 compared to $4.8 million for the quarter ended June 30, 2017, primarily from higher salaries and benefits and operating expenses.  Salaries and benefits expense increased $393,000 compared to the second quarter of 2017 primarily due to an increase in the number of full-time equivalent employees as a result of the addition of our University Place branch and loan production office in Sequim in June 2017.  The percent of incentive bonuses paid out quarterly increased starting in January 2018, which also contributed to the period-over-period increase.  Operations expense increased $169,000 primarily due to an increase in audit fees, losses related to serviced loans, and increases in credit administration fees.
 
2

The efficiency ratio for the quarter ended June 30, 2018 improved to 67.28%, compared to 71.89% for the quarter ended March 31, 2018 and 71.22% for the second quarter of 2017.  The improvement in the efficiency ratio compared to the prior quarter and the year ago quarter was due primarily to the increase in net interest income.

The provision for income taxes increased slightly for the second quarter of 2018, compared to the sequential quarter as a result of the increase in income before taxes.  The provision for income taxes decreased $124,000, or 19.5%, compared to the second quarter of 2017 as a result of the Tax Cuts and Jobs Act which was signed into law on December 22, 2017, and reduced our federal corporate income tax rate from 35% to 21% beginning in January 2018.

Balance Sheet Review, Capital Management and Credit Quality

Total assets at June 30, 2018 were $686.2 million, compared to $659.5 million at March 31, 2018 and $588.3 million at June 30, 2017.  The increase from both the sequential quarter and same quarter last year was primarily a result of the increase in loans. In addition, FHLB stock increased $1.9 million to $3.6 million at June 30, 2018 as compared to $1.7 million at June 30, 2017, as a result of our utilizing additional FHLB advances to fund loan growth over the last year.

Loans totaled $590.8 million at June 30, 2018, compared to $560.0 million at March 31, 2018 and $493.9 million at June 30, 2017.  All loan categories experienced an increase as compared to the comparative prior periods other than home equity loans. The largest increases in the loan portfolio compared to the prior quarter were in the commercial and multifamily, commercial business, floating homes, and one-to four- family loan portfolios.  The commercial and multifamily loan portfolio increased $15.7 million, or 7.1%, to $236.9 million and the commercial business loan portfolio increased $5.3 million, or 13.9%, to $43.1 million.  The floating homes and one- to four- family loan portfolios increased $4.5 million, or 15.6%, and $4.1 million, or 2.5%, respectively.  The largest increases in the loan portfolio compared to the year ago quarter were in the commercial and multifamily loan portfolio, which increased $41.4 million, or 21.2%, the one- to four- family loan portfolio, which increased $18.5 million, or 12.5%, and the commercial business loan portfolio, which increased $17.8 million, or 70.3%.  At June 30, 2018, commercial and multifamily real estate loans were approximately 40.0% of total loans. One- to four- family loans, including home equity loans, were  approximately 32.5% of the loan portfolio.  Consumer loans, consisting of manufactured homes, floating homes and other consumer loans were approximately 9.7% of total loans at that date.  Construction and land loans were approximately 10.5% of the loan portfolio and commercial business loans were  approximately 7.3% of total loans  at June 30, 2018.

Cash and cash equivalents decreased $5.3 million, or 8.1%, to $59.4 million at June 30, 2018, compared to $64.7 million at March 31, 2018 and remained relatively unchanged compared to June 30, 2017.  The decrease from the prior quarter was due to a reduction of our excess liquidity to fund our loan growth.

Deposits increased $10.2 million, or 1.9%, to $539.4 million at June 30, 2018, compared to $529.2 million at March 31, 2018 and increased $45.7 million, or 9.3%, compared to $493.7 million at June 30, 2017.  The increase in deposits during  the second quarter of 2018 compared to the sequential quarter reflects our continued focus on generating low cost deposits to fund our loan growth.  The increase in deposits in the second quarter of 2018 compared to the same quarter last year was the result of organic growth and $14.5 million in deposits assumed as a result of the purchase of our University Place branch in June 2017.  FHLB borrowings increased to $71.0 million at June 30, 2018, compared to $56.0 million at March 31, 2018 and increased from $25.0 million one year ago.

Nonperforming assets (“NPAs”), which are comprised of non-accrual loans, nonperforming troubled debt restructurings (“TDRs”), other real estate owned (“OREO”) and other repossessed assets, remained stable at $2.6 million, or 0.39% of total assets, at both June 30, 2018 and  March 31, 2018, and decreased $1.6 million, or 37.3% from $4.2 million, or 0.72% of total assets, at June 30, 2017.
 
3

The following table summarizes our NPAs:

Nonperforming Loans:
 
June 30, 2018
   
March 31, 2018
   
June 30, 2017
 
(Dollars in thousands, unaudited)
 
Balance
   
% of
Total
   
Balance
   
% of
Total
   
Balance
   
% of
Total
 
One- to four- family
 
$
986
     
37.3
%
 
$
782
     
30.5
%
 
$
2,039
     
48.3
%
Home equity loans
   
391
     
14.8
     
452
     
17.6
     
691
     
16.4
 
Commercial and multifamily
   
192
     
7.3
     
197
     
7.7
     
211
     
5.0
 
Construction and land
   
79
     
3.0
     
82
     
3.2
     
-
     
-
 
Manufactured homes
   
182
     
6.9
     
200
     
7.8
     
98
     
2.3
 
Commercial business
   
204
     
7.7
     
212
     
8.3
     
229
     
5.4
 
Total nonperforming loans
   
2,034
     
76.9
     
1,925
     
75.1
     
3,268
     
77.4
 
OREO and Other Repossessed Assets:
                                               
One- to four- family
   
-
     
-
     
28
     
1.1
     
342
     
8.1
 
Commercial and multifamily
   
600
     
22.7
     
600
     
23.4
     
600
     
14.2
 
Manufactured homes
   
10
     
0.4
     
10
     
0.4
     
10
     
0.3
 
Total OREO and repossessed assets
   
610
     
23.1
     
638
     
24.9
     
952
     
22.6
 
Total nonperforming assets
 
$
2,644
     
100.0
%
 
$
2,563
     
100.0
%
 
$
4,220
     
100.0
%
 
The following table summarizes the allowance for loan losses:
 
   
For the Quarter Ended:
 
Allowance for Loan Losses
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
 
(Dollars in thousands, unaudited)
Balance at beginning of period
 
$
5,328
   
$
5,241
   
$
4,838
 
Provision for loan losses during the period
   
150
     
100
     
-
 
Net recoveries/(charge-offs) during the period
   
25
     
(13
)
   
(3
)
Balance at end of period
 
$
5,503
   
$
5,328
   
$
4,835
 
                         
Allowance for loan losses to total loans
   
0.93
%
   
0.95
%
   
0.98
%
Allowance for loan losses to total nonperforming loans
   
270.55
%
   
276.78
%
   
147.95
%

The increase in the allowance for loan losses at June 30, 2018, compared to the prior quarter and the same period a year ago was due to the increase in the balance of the loan portfolio.  Total loans increased $30.8 million, or 5.5%, and $96.9 million, or 19.6%, compared to March 31, 2018, and June 30, 2017, respectively.  Net loan recoveries during the second quarter of 2018 totaled $25,000 compared to net loan charge-offs of $13,000 for the preceding  quarter and net loan charge-offs of $3,000 for the second quarter of 2017.

The allowance for loan losses to total loans decreased slightly to 0.93% for the quarter ended June 30, 2018 compared to 0.95% for the quarter ended March 31, 2018 and 0.98% for the quarter ended June 30, 2017.  The decline in the ratio reflects the growth in the loan portfolio and  improvement in the credit quality of our portfolio over the last year.  The allowance for loan losses as a percent of nonperforming loans decreased to 270.6% at June 30, 2018 compared to 276.8% at March 31, 2018 and increased from 148.0% at June 30, 2017.
 
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, Port Ludlow, and University Place. Sound Community Bank is a Fannie Mae Approved Lender and Seller/Servicer with two Loan Production Offices, one located in the Madison Park neighborhood of Seattle and one located in Sequim, Washington. For more information, please visit www.soundcb.com.
 
4

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 general and local 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; changes in the regulatory and tax environments in which the Company operates; 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.
 
5

CONSOLIDATED INCOME STATEMENTS
 
For the Quarter Ended:
         
(Dollars in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over Year
% Change
 
Interest income
 
$
8,163
   
$
7,492
   
$
6,517
     
9.0
%
   
25.3
%
Interest expense
   
1,222
     
1,023
     
763
     
19.5
     
60.2
 
Net interest income
   
6,941
     
6,469
     
5,754
     
7.3
     
20.6
 
Provision for loan losses
   
150
     
100
     
-
     
50.0
   
nm
 
Net interest income after provision for loan losses
   
6,791
     
6,369
     
5,754
     
6.6
     
18.0
 
Noninterest income:
                                       
Service charges and fee income
   
461
     
460
     
492
     
0.2
     
(6.3
)
Earnings on cash surrender value of bank-owned life insurance
   
80
     
79
     
82
     
1.3
     
(2.4
)
Mortgage servicing income
   
206
     
220
     
148
     
(6.4
)
   
39.2
 
Net gain on sale of loans
   
343
     
332
     
261
     
3.3
     
31.4
 
Total noninterest income
   
1,090
     
1,091
     
983
     
(0.1
)
   
10.9
 
Noninterest expense:
                                       
Salaries and benefits
   
3,055
     
3,141
     
2,662
     
(2.7
)
   
14.8
 
Operations
   
1,198
     
1,239
     
1,029
     
(3.3
)
   
16.4
 
Regulatory assessments
   
91
     
101
     
136
     
(9.9
)
   
(33.1
)
Occupancy
   
573
     
474
     
522
     
20.9
     
9.8
 
Data processing
   
461
     
453
     
438
     
1.8
     
5.3
 
Net loss and expenses on OREO and repossessed assets
   
25
     
27
     
11
     
(7.4
)
   
127.3
 
Total noninterest expense
   
5,403
     
5,435
     
4,798
     
(0.6
)
   
12.6
 
Income before provision for income taxes
   
2,478
     
2,025
     
1,939
     
22.4
     
27.8
 
Provision for income taxes
   
512
     
423
     
636
     
21.0
     
(19.5
)
Net income
 
$
1,966
   
$
1,602
   
$
1,303
     
22.7
%
   
50.9
%
 

nm = not meaningful

   
For the Quarter Ended:
         
   
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over Year
% Change
 
KEY FINANCIAL RATIOS (unaudited)
                             
Annualized return on average assets
   
1.16
%
   
1.00
%
   
0.92
%
   
16.0
%
   
26.1
%
Annualized return on average equity
   
11.57
%
   
9.67
%
   
8.24
%
   
19.6
%
   
40.4
%
Annualized net interest margin
   
4.31
%
   
4.26
%
   
4.27
%
   
1.2
%
   
0.9
%
Annualized efficiency ratio
   
67.28
%
   
71.89
%
   
71.22
%
   
(6.4
)%
   
(5.5
)%

PER COMMON SHARE DATA
 
At or For the Quarter Ended:
         
(Shares in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
Year
% Change
 
Basic earnings per share
 
$
0.79
   
$
0.65
   
$
0.52
     
21.5
%
   
51.9
%
Diluted earnings per share
 
$
0.77
   
$
0.63
   
$
0.50
     
22.2
     
54.0
 
Weighted-average basic shares outstanding
   
2,489
     
2,477
     
2,501
     
0.5
     
(0.5
)
Weighted-average diluted shares outstanding
   
2,561
     
2,558
     
2,597
     
0.1
     
(1.4
)
Common shares outstanding at period-end
   
2,540
     
2,524
     
2,502
     
0.6
     
1.5
 
Book value per share
 
$
26.96
   
$
26.36
   
$
25.13
     
2.3
%
   
7.3
%
 
6

CONSOLIDATED INCOME STATEMENT
 
Six Months Ended
   
Year over
 
(Dollars in thousands, unaudited)
 
June 30,
2018
   
June 30,
2017
   
Year
% Change
 
Interest income
 
$
15,655
   
$
13,108
     
19.4
%
Interest expense
   
2,245
     
1,557
     
44.2
 
Net interest income
   
13,410
     
11,551
     
16.1
 
Provision for loan losses
   
250
     
-
   
 
nm
 
Net interest income after provision for loan losses
   
13,160
     
11,551
     
13.9
 
Noninterest income:
                       
Service charges and fee income
   
921
     
1,003
     
(8.2
)
Increase in cash surrender value of life insurance
   
159
     
163
     
(2.5
)
Mortgage servicing income
   
426
     
381
     
11.8
 
Gain on sale of loans
   
675
     
433
     
55.9
 
Total noninterest income
   
2,181
     
1,980
     
10.2
 
Noninterest expense:
                       
Salaries and benefits
   
6,196
     
5,353
     
15.7
 
Operations
   
2,437
     
2,050
     
18.9
 
Regulatory assessments
   
192
     
260
     
(26.2
)
Occupancy
   
1,047
     
895
     
17.0
 
Data processing
   
914
     
845
     
8.2
 
Net loss and expenses on OREO and repossessed assets
   
52
     
14
     
271.4
 
Total noninterest expense
   
10,838
     
9,417
     
15.1
 
Income before provision for income taxes
   
4,503
     
4,114
     
9.5
 
Provision for income taxes
   
935
     
1,397
     
(33.1
)
Net income
 
$
3,568
   
$
2,717
     
31.3
%

nm = not meaningful
 
7

CONSOLIDATED BALANCE SHEET
                 
(Dollars in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
Year
% Change
 
ASSETS
                             
Cash and cash equivalents
 
$
59,434
   
$
64,689
   
$
59,956
     
(8.1
)%
   
(0.9
)%
Available-for-sale securities, at fair value
   
5,118
     
5,268
     
6,200
     
(2.8
)
   
(17.5
)
Loans held-for-sale
   
721
     
950
     
720
     
(24.1
)
   
0.1
 
Loans
   
590,756
     
559,979
     
493,896
     
5.5
     
19.6
 
Allowance for loan losses
   
(5,503
)
   
(5,328
)
   
(4,835
)
   
3.3
     
13.8
 
Total loans, net
   
585,253
     
554,651
     
489,061
     
5.5
     
19.7
 
Accrued interest receivable
   
2,224
     
1,962
     
1,677
     
13.4
     
32.6
 
Bank-owned life insurance, net
   
13,155
     
13,075
     
12,429
     
0.6
     
5.8
 
Other real estate owned (“OREO”) and other repossessed assets, net
   
610
     
638
     
952
     
(4.4
)
   
(35.9
)
Mortgage servicing rights, at fair value
   
3,582
     
3,532
     
3,450
     
1.4
     
3.8
 
Federal Home Loan Bank (“FHLB”) stock, at cost
   
3,614
     
3,014
     
1,705
     
19.9
     
112.0
 
Premises and equipment, net
   
7,474
     
7,545
     
7,467
     
(0.9
)
   
0.1
 
Other assets
   
5,038
     
4,207
     
4,634
     
19.8
     
8.7
 
TOTAL ASSETS
 
$
686,223
   
$
659,531
   
$
588,251
     
4.0
%
   
16.7
%
LIABILITIES
                                       
Deposits:
                                       
Interest-bearing
 
$
454,703
   
$
444,918
   
$
418,724
     
2.2
%
   
8.6
%
Noninterest-bearing
   
84,713
     
84,275
     
75,020
     
0.5
     
12.9
 
Total deposits
   
539,416
     
529,193
     
493,744
     
1.9
     
9.3
 
Borrowings
   
71,000
     
56,000
     
25,000
     
26.8
     
184.0
 
Accrued interest payable
   
82
     
81
     
78
     
1.2
     
5.1
 
Other liabilities
   
6,766
     
6,605
     
6,011
     
2.4
     
12.6
 
Advance payments from borrowers for taxes and insurance
   
476
     
1,106
     
548
     
(57.0
)
   
(13.1
)
TOTAL LIABILITIES
   
617,740
     
592,985
     
525,381
     
4.2
     
17.6
 
STOCKHOLDERS’ EQUITY:
                                       
Common stock
   
25
     
25
     
25
     
-
     
-
 
Additional paid-in capital
   
25,371
     
25,104
     
24,300
     
1.1
     
4.4
 
Unearned shares – Employee Stock Ownership Plan (“ESOP”)
   
(397
)
   
(453
)
   
(683
)
   
(12.4
)
   
(41.9
)
Retained earnings
   
43,405
     
41,792
     
39,089
     
3.9
     
11.0
 
Accumulated other comprehensive income, net of tax
   
79
     
78
     
139
     
1.3
     
(43.2
)
TOTAL STOCKHOLDERS’ EQUITY
   
68,483
     
66,546
     
62,870
     
2.9
     
8.9
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
686,223
   
$
659,531
   
$
588,251
     
4.0
%
   
16.7
%
 
8

LOANS
                 
(Dollars in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
Year
% Change
 
Real estate loans:
                             
One- to four- family
 
$
166,390
   
$
162,294
   
$
147,848
     
2.5
%
   
12.5
%
Home equity
   
25,954
     
27,638
     
27,996
     
(6.1
)
   
(7.3
)
Commercial and multifamily
   
236,915
     
221,255
     
195,486
     
7.1
     
21.2
 
Construction and land
   
62,704
     
60,789
     
52,775
     
3.2
     
18.8
 
Total real estate loans
   
491,963
     
471,976
     
424,105
     
4.2
     
16.0
 
Consumer Loans:
                                       
Manufactured homes
   
18,295
     
17,480
     
16,300
     
4.7
     
12.2
 
Floating homes
   
33,643
     
29,110
     
25,225
     
15.6
     
33.4
 
Other consumer
   
5,642
     
5,462
     
4,639
     
3.3
     
21.6
 
Total consumer loans
   
57,580
     
52,052
     
46,164
     
10.6
     
24.7
 
Commercial business loans
   
43,119
     
37,854
     
25,314
     
13.9
     
70.3
 
Total loans
   
592,662
     
561,882
     
495,583
     
5.5
     
19.6
 
Less:
                                       
Deferred fees
   
(1,906
)
   
(1,903
)
   
(1,687
)
   
0.2
     
13.0
 
Allowance for loan losses
   
(5,503
)
   
(5,328
)
   
(4,835
)
   
3.3
     
13.8
 
Total loans, net
 
$
585,253
   
$
554,651
   
$
489,061
     
5.5
%
   
19.7
%
 
DEPOSITS
                 
(Dollars in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
Year
% Change
 
Noninterest-bearing
 
$
84,713
   
$
84,275
   
$
75,020
     
0.5
%
   
12.9
%
Interest-bearing
   
186,691
     
178,629
     
159,291
     
4.5
     
17.2
 
Savings
   
51,031
     
50,336
     
47,375
     
1.4
     
7.7
 
Money market
   
49,378
     
49,457
     
55,222
     
(0.2
)
   
(10.6
)
Certificates
   
167,603
     
166,496
     
156,836
     
0.7
     
6.9
 
Total deposits
 
$
539,416
   
$
529,193
   
$
493,744
     
1.9
%
   
9.3
%

   
At or For the Quarter Ended:
         
CREDIT QUALITY DATA
(Dollars in thousands, unaudited)
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
year
% Change
 
Nonaccrual loans
 
$
1,882
   
$
1,793
   
$
1,819
     
5.0
%
   
3.5
%
Nonperforming TDRs
   
152
     
132
     
1,449
     
15.2
     
(89.5
)
Total nonperforming loans
   
2,034
     
1,925
     
3,268
     
5.7
     
(37.8
)
OREO and other repossessed assets
   
610
     
638
     
952
     
(4.4
)
   
(35.9
)
Total nonperforming assets
 
$
2,644
   
$
2,563
   
$
4,220
     
3.2
     
(37.3
)
Performing TDRs on accrual
 
$
3,325
   
$
3,246
   
$
2,254
     
2.4
     
47.5
 
Net (charge-offs)/recoveries during the quarter
   
25
     
(13
)
   
(3
)
   
(292.3
)
   
(933.3
)
Provision for loan losses during the quarter
   
150
     
100
     
-
     
50.0
   
nm
 
Allowance for loan losses
   
5,503
     
5,328
     
4,835
     
3.3
     
13.8
 
Allowance for loan losses to total loans
   
0.93
%
   
0.95
%
   
0.98
%
   
(2.1
)
   
(5.1
)
Allowance for loan losses to total nonperforming loans
   
270.55
%
   
276.78
%
   
147.95
%
   
(2.3
)
   
82.9
 
Nonperforming loans to total loans
   
0.34
%
   
0.34
%
   
0.66
%
   
-
     
(48.5
)
Nonperforming assets to total assets
   
0.39
%
   
0.39
%
   
0.72
%
   
-
%
   
(45.8
)%
 

nm = not meaningful
 
9

OTHER PERIOD-END STATISTICS
 
June 30,
2018
   
March 31,
2018
   
June 30,
2017
   
Sequential
Quarter
% Change
   
Year over
Year
% Change
 
(Dollars in thousands, unaudited)
                             
Sound Community Bank:
                             
Net loan to deposit ratio
   
108.50
%
   
104.81
%
   
99.05
%
   
3.5
%
   
9.5
%
Noninterest-bearing deposits / total deposits
   
15.70
%
   
15.93
%
   
15.19
%
   
(1.4
)%
   
3.4
%
                                         
Sound Financial Bancorp, Inc.:
                                       
Average total assets for the quarter
 
$
677,630
   
$
639,741
   
$
568,691
     
5.9
%
   
19.2
%
Average total equity for the quarter
 
$
67,945
   
$
66,245
   
$
63,251
     
2.6
%
   
7.4
%
 
Media:
 
Financial:
Laurie Stewart
 
Daphne Kelley
President/CEO
 
SVP/CFO
(206) 448-0884 x306
 
(206) 448-0884 x305
 
 
10

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