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Section 1: 8-K (FORM 8-K)

Document



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) April 26, 2019
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.
Emerging growth company ☐

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 April 26, 2019, Sound Financial Bancorp, Inc. (the "Company") issued its earnings press release announcing First Quarter 2019 financial results and that its Board of Directors declared a cash dividend on the Company's common stock of $0.14 per share, payable on May 23, 2019 to stockholders of record as of the close of business on May 9, 2019. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.




Item 9.01.    Financial Statements and Exhibits.

(d)
Exhibits
The following exhibit is being furnished herewith and this list shall constitute the exhibit index:

99.1







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: April 26, 2019
By:
/s/ Laura Lee Stewart
 
 
 
Laura Lee Stewart
 
 
 
President and CEO
 



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Section 2: EX-99.1 (PRESS RELEASE - EARNIGNS AND DIVIDEND)

Exhibit




397681427_companylogoa04.jpg
Sound Financial Bancorp, Inc. Reports Net Income of $1.4 million for
First Quarter 2019
Board Declares Quarterly Cash Dividend of $0.14 per share

Seattle, Wash., April 26, 2019 -- Sound Financial Bancorp, Inc. (Nasdaq: SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $1.4 million for the quarter ended March 31, 2019, or diluted earnings per share of $0.56, as compared to net income of $1.6 million, or diluted earnings per share of $0.64 for the quarter ended December 31, 2018 and $1.6 million or diluted earnings per share of $0.63 for the quarter ended March 31, 2018.

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 May 23, 2019 to stockholders of record as of the close of business on May 9, 2019.

"The first quarter is typically our slowest quarter for loan originations. We also sold a small portion of our one-to-four family loan portfolio resulting in a lower average loan balances than in the prior quarter," said Laurie Stewart, President and CEO of the Company and the Bank. "Deposit growth was strong during the quarter which allowed us to reduce our reliance on higher cost FHLB borrowings. We were also able to partly mitigate the rising cost of deposits by continuing to increase our non-interest bearing deposits," concluded Ms. Stewart.


Highlights for the quarter ended March 31, 2019 include:

Loans held-for-portfolio decreased 5.7% to $584.5 million at March 31, 2019, from $619.5 million at December 31, 2018 and increased $24.5 million or 4.4% from $560.0 million at March 31, 2018;
Total deposits increased 5.4% to $583.7 million at March 31, 2019, from $553.6 million at December 31, 2018 and increased 10.3% from $529.2 million at March 31, 2018, with non-interest bearing deposits increasing $2.6 million or 2.7% compared to December 31, 2018 and $14.4 million, or 17.1% compared to March 31, 2018;
Total borrowings decreased $59.0 million, or 70.2% to $25.0 million at March 31, 2019, from $84.0 million at December 31, 2018, and decreased $31.0 million, or 55.4% from $56.0 million at March 31, 2018;
Total assets decreased 2.7% to $697.6 million at March 31, 2019, from $716.7 million at December 31, 2018 and increased 5.8% from $659.5 million at March 31, 2018;
Net interest income decreased 3.6% to $7.1 million during the quarter ended March 31, 2019, from $7.2 million during the quarter ended December 31, 2018 and increased 8.7%, from $6.4 million during the quarter ended March 31, 2018 ;
Net interest margin ("NIM") was 4.13% for the quarter ended March 31, 2019, compared to 4.23% for the quarter ended December 31, 2018 and 4.29% for the quarter ended March 31, 2018; and
We recorded a recapture from the allowance for loan losses of $200,000 for the quarter ended March 31, 2019, compared to a provision for loan losses of $25,000 for the quarter ended December 31, 2018 and $100,000 for the quarter ended March 31, 2018;


The Bank continued to maintain capital levels in excess of the regulatory requirements and was categorized as "well-capitalized" at March 31, 2019.

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Operating Results

Net interest income decreased $258,000, or 3.6%, to $7.0 million during the quarter ended March 31, 2019, compared to $7.2 million during the quarter ended December 31, 2018 and increased $562,000, or 8.7%, from $6.5 million during the quarter ended March 31, 2018. The decrease from the prior quarter was primarily a result of lower average loan balance and loan yields as a result of one-to-four family loan sales of $16.2 million during the period combined with higher interest expense. The change from the comparable period one year ago was primarily a result of increased interest income on loans due to both higher average balances and loan yields, partially offset by increased interest expense.

Interest income decreased $175,000, or 2.0%, to $8.8 million during the quarter ended March 31, 2019, compared to $8.9 million during the quarter ended December 31, 2018 and increased $1.3 million, or 17.8%, compared to $7.5 million during the quarter ended March 31, 2018. Interest income on loans decreased $191,000, or 2.2%, to $8.4 million during the quarter ended March 31, 2019, compared to $8.6 million for the quarter ended December 31, 2018, primarily due to lower average loan balances. The increase in interest income on loans compared to the same quarter one year ago was due to higher average loan balances and average loan yields. The average loans held-for-portfolio balance was $612.1 million for the quarter ended March 31, 2019, compared to $621.1 million for the quarter ended December 31, 2018, and $549.7 million for quarter ended March 31, 2018. The average yield on loans held-for-portfolio was 5.46% for the quarter ended March 31, 2019, down slightly from 5.50% for the quarter ended December 31, 2018 and up 23 basis points from 5.23% for the quarter ended March 31, 2018. Interest income on the investment portfolio increased $168,000, or 68.3%, to $414,000 during the quarter ended March 31, 2019 due to the rise in market interest rates during the last year compared to March 31, 2018, and increased $16,000 from the quarter ended December 31, 2008.

Interest expense increased $83,000, or 4.9%, to $1.8 million for the quarter ended March 31, 2019, compared to $1.7 million for the quarter ended December 31, 2018 and increased $761,000, or 74.4%, compared to $1.0 million for the quarter ended March 31, 2018. The increase from the prior quarter was a result of the higher weighted-average cost of deposits as well as higher average deposit balances. The weight average cost of deposits increased to 1.02% for the quarter ended March 31, 2019, up 18 basis points from 0.84% for the quarter ended December 31, 2018. The average deposit balance was $574.6 million for the quarter ended March 31, 2019, compared to $558.0 million for the quarter ended December 31, 2018.

The interest expense increase from the comparable period a year ago was primarily due to increases in average balances and cost of deposits and Federal Home Loan Bank ("FHLB") borrowings. Interest expense on FHLB borrowings increased $105,000, or 49.3%, to $318,000 for the quarter ended March 31, 2019, compared to a year ago, due to a $4.8 million, or 9.8% increase in the average balance of FHLB borrowings to $54.1 million. The average rate paid on FHLB borrowings increased to 2.35% for the quarter ended March 31, 2019, up 62 basis points from 1.73% for the quarter ended March 31, 2018. Interest expense on deposits increased $656,000, or 81.0%, to $1.5 million for the quarter ended March 31, 2019, compared to a year ago, driven by an increase of $37.0 million, or 8.4% in the average balance of interest-bearing deposits. The average rate paid on deposits increased to 1.02% for the quarter ended March 31, 2019, up 39 basis points from 0.63% for the quarter ended March 31, 2018.

Net interest margin decreased to 4.13% for the quarter ended March 31, 2019, compared to 4.23% for the quarter ended December 31, 2018 and 4.29% for the quarter ended March 31, 2018. The decrease from the prior quarter was primarily the result of lower average loan balances. The decrease compared to one year ago period was primarily due to higher funding costs as interest rates paid on interest-bearing liabilities increased more rapidly than yields earned on interest-earning assets.

We recorded a recapture from the allowance for loan losses of $200,000 for the quarter ended March 31, 2019, compared to a provision for loan losses of $25,000 for the quarter ended December 31, 2018 and $100,000 provision for the quarter ended March 31, 2018. The recapture in the current quarter was primarily the result of the $16.2 million one-to-four family loan sale during the first quarter of 2019, coupled with continued strong credit quality, including net recoveries of $3,000.

Noninterest income increased $148,000, or 17.2%, to $1.0 million for the quarter ended March 31, 2019, compared to $860,000 for the quarter ended December 31, 2018 and decreased $125,000, or 11.0%, from $1.1 million for the quarter ended March 31, 2018. The increase from the sequential quarter was primarily a result of gain on sale of loans of $535,000 during the quarter, partially offset by a $197,000 decrease in mortgage servicing income. The decrease from the same period a year ago primarily was a result of a decrease of $302,000 in mortgage servicing income, partially offset by a $161,000 increase in net gain on sale of loans and a $29,000 increase in bank-owned life insurance income.

Noninterest expense increased $280,000, or 4.6%, to $6.4 million for the quarter ended March 31, 2019, compared to $6.1 million for the quarter ended December 31, 2018 and increased $1.0 million, or 17.7%, from $5.4 million for the quarter ended March 31, 2018. The increase from the quarter ended December 31, 2018 was primarily a result salaries and benefits expense increasing $387,000 during the quarter, partially offset by a decrease in data processing and operations expense. The increase in salaries and

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benefits was attributed to normal year-end salary increases and the yearly bonus program, partially offset by decreases in quarterly accrued vacation and sick expense during current quarter.

Noninterest expense increased $960,000, or 17.7%, to $6.4 million for the quarter ended March 31, 2019, compared to $5.4 million for the quarter ended March 31, 2018. The increases in noninterest expense from the quarter ended March 31, 2018 were primarily due to increases of $498,000 in salaries and benefits and $395,000 in operations expense. The increase in salaries and benefits expense were due to the same reasons discussed above for the sequential quarter. Operations expense increased $395,000 from a year ago, primarily due to an increase in legal fees, professional fees and loan related expenses.

The efficiency ratio for the quarter ended March 31, 2019 was 79.97%, compared to 75.43% for the quarter ended December 31, 2018 and 71.89% for the quarter ended March 31, 2018. The weakening of the efficiency ratio compared to prior quarter and a year ago was primarily due to higher noninterest expense, combined with lower noninterest income.


Balance Sheet Review, Capital Management and Credit Quality

Total assets at March 31, 2019 were $697.6 million, compared to $716.7 million at December 31, 2018 and $659.5 million at March 31, 2018. The decrease in assets from sequential quarter was primarily due to a lower balance of loans held-for-portfolio as a result of a $16.2 million one-to-four family loan sale during the quarter and decline in FHLB stock, partially offset by higher cash and cash equivalents and the capitalization of the right of use assets in the first quarter of 2019 in accordance with our implementation of new lease accounting guidance. The increase from one year ago was primarily a result of the right of use assets of $8.1 million recorded, a higher balance in loans held-for-portfolio and cash balances which increased $24.5 million and $7.8 million, respectively, partially offset by a decrease in FHLB stock. FHLB stock decreased $2.3 million to $1.9 million at March 31, 2019, from $4.1 million at December 31, 2018 and decreased $1.2 million, from $3.0 million at March 31, 2018, as a result of reduced borrowing needs. The adoption of accounting guidance for leases (“ASU 2016-02”) in 2019 required the Company to recognize right of use lease assets and corresponding lease liabilities on the balance sheet.

Cash and cash equivalents increased $10.7 million, or 17.4%, to $72.5 million at March 31, 2019, compared to $61.8 million at December 31, 2018 and increased $7.8 million, or 12.1%, compared to $64.7 million at March 31, 2018. The increase from the prior quarter and one year ago was a result of the loan sale at quarter end.

Loans held-for-portfolio decreased to $584.5 million at March 31, 2019, compared to $619.5 million at December 31, 2018 and increased from $560.0 million at March 31, 2018. The largest decreases in the loan portfolio compared to the prior quarter were in one-to-four family, commercial and multifamily real estate and commercial business loan portfolios. The one-to-four family loan portfolio decreased $18.4 million, or 10.8%, to $151.4 million compared to the prior quarter primarily as a result of the sale of $16.2 million of one-to-four family loans held in portfolio during the quarter. The commercial and multifamily real estate decreased $7.2 million, or 2.9%, to $245.4 million and the commercial business loan portfolio decreased $6.8 million, or 17.4%, to $32.0 million. All loan categories experienced an increase compared to the year ago quarter, other than one-to-four family, home equity and commercial business. The commercial and multifamily real estate loan portfolio increased $24.2 million, or 10.9%, to $245.4 million, the construction and land loan portfolio increased $5.6 million, or 9.2%, to $66.4 million, and the consumer loan portfolio increased $14.6 million, or 28.1%, to $66.7 million, with the largest increase in consumer loans coming from floating homes loans, which increased $9.9 million, or 34.0%, to $39.0 million. The increases were partially offset by decreases of $10.9 million in the one-to-four family, $5.8 million in the commercial business and $3.2 million in home equity loan portfolios. At March 31, 2019, commercial and multifamily real estate loans accounted for approximately 41.8% of total loans and one-to-four family loans, including home equity loans accounted for approximately 30.0% of total loans. Consumer loans, consisting of manufactured homes, floating homes, and other consumer loans accounted for approximately 11.4% of total loans at that date. Construction and land loans accounted for approximately 11.3% of total loans and commercial business loans accounted for approximately 5.5% of total loans at March 31, 2019.

Deposits increased $30.1 million, or 5.4%, to $583.7 million at March 31, 2019, compared to $553.6 million at December 31, 2018 and increased $54.5 million, or 10.3%, compared to $529.2 million at March 31, 2018. The increase in deposits compared to the prior quarter and a year ago was due to primarily to increases in certificates of deposit. We continue our efforts to increase non-interest bearing deposits, which increased $2.6 million, or 2.7%, to $98.6 million at March 31, 2019, compared to $96.1 million at December 31, 2018 and increased $14.4 million, or 17.1% from $84.3 million at March 31, 2018. FHLB borrowings

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decreased to $25.0 million at March 31, 2019, compared to $84.0 million at December 31, 2018 and $56.0 million at March 31, 2018. We utilized borrowings to supplement our deposits to support loan growth over the past year.

Nonperforming assets ("NPAs"), which are comprised of non-accrual loans, nonperforming troubled debt restructurings ("TDRs"), other real estate owned ("OREO") and other repossessed assets increased $411,000 or 12.7% to $3.7 million at March 31, 2019, from $3.2 million at December 31, 2018 and increased $1.1 million or 42.5% from $2.6 million at March 31, 2018. NPAs to total assets were 0.52%, 0.45% and 0.39% at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

The following table summarizes our NPAs (dollars in thousands, unaudited):
 
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
 
 
Balance
 
% of Total
 
Balance
 
% of Total
 
Balance
 
% of Total
Nonperforming Loans:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
 
$
1,041

 
28.5
%
 
$
1,120

 
34.5
%
 
$
782

 
30.5
%
Home equity loans
 
321

 
8.8

 
359

 
11.1

 
452

 
17.6

Commercial and multifamily
 
353

 
9.7

 
534

 
16.5

 
197

 
7.7

Construction and land
 
83

 
2.3

 
123

 
3.8

 
82

 
3.2

Manufactured homes
 
231

 
6.3

 
214

 
6.6

 
200

 
7.8

Commercial business
 
555

 
15.2

 
317

 
9.8

 
212

 
8.3

Total nonperforming loans
 
2,584

 
70.8

 
2,667

 
82.3

 
1,925

 
75.1

OREO and Other Repossessed Assets:
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
 
494

 
13.5

 

 

 
28

 
1.1

Commercial and multifamily
 
575

 
15.7

 
575

 
17.7

 
600

 
23.4

Manufactured homes
 

 

 

 

 
10

 
0.4

Total OREO and repossessed assets
 
1,069

 
29.2

 
575

 
17.7

 
638

 
24.9

Total nonperforming assets
 
$
3,653

 
100.0
%
 
$
3,242

 
100.0
%
 
$
2,563

 
100.0
%


The following table summarizes the allowance for loan losses (dollars in thousands, unaudited):
 
 
For the Quarter Ended:
 
 
March 31, 2019
 
December 31, 2018
 
March 31, 2018
Allowance for Loan Losses
 
 
 
 
 
 
Balance at beginning of period
 
$
5,774

 
$
5,748

 
$
5,241

(Recapture) provision for loan losses during the period
 
(200
)
 
25

 
100

Net recoveries (charge-offs) during the period
 
3

 
1

 
(13
)
Balance at end of period
 
$
5,577

 
$
5,774

 
$
5,328

Allowance for loan losses to total loans
 
0.95
%
 
0.93
%
 
0.95
%
Allowance for loan losses to total nonperforming loans
 
215.83
%
 
216.50
%
 
276.78
%

The decrease in the allowance for loan losses at March 31, 2019, compared to the prior quarter was primarily due to a recapture from the allowance for loan losses of $200,000 during the period. The recapture in the current quarter was primarily the result of the $16.2 million one-to-four family loan sale during the first quarter of 2019, coupled with continued strong credit quality. The increase in the allowance for loan losses compared to the same period a year ago was due to the increases in the balance of the loan portfolio. Net loan recoveries during the first quarter of 2019 totaled $3,000 compared to net recoveries of $1,000 for the quarter ended December 31, 2018 and net charge-offs of $13,000 for the quarter ended March 31, 2018.

The allowance for loan losses to total loans held-for-portfolio increased to 0.95% for the quarter ended March 31, 2019, compared to 0.93% for the quarter ended December 31, 2018 and remained unchanged from 0.95% for the quarter ended March 31, 2018. The allowance for loan losses as a percentage of nonperforming loans decreased to 215.8% at March 31, 2019, compared to 216.5% at December 31, 2018 and 276.8% at March 31, 2018.


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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.


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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.


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KEY FINANCIAL RATIOS
(unaudited)

 
 
For the Quarter Ended
 
 
 
 
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Annualized return on average assets
 
0.81
%
 
0.91
%
 
1.00
%
 
(11.0
)%
 
(19.0
)%
Annualized return on average equity
 
7.92

 
9.21

 
9.67

 
(14.0
)
 
(18.1
)
Annualized net interest margin
 
4.13

 
4.23

 
4.29

 
(2.4
)
 
(3.7
)
Annualized efficiency ratio
 
79.97
%
 
75.43
%
 
71.89
%
 
6.0
 %
 
11.2
 %

 

PER COMMON SHARE DATA
(Shares in thousands, unaudited)
 
 
At or For the Quarter Ended
 
 
 
 
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Basic earnings per share
 
$
0.57

 
$
0.66

 
$
0.65

 
(13.6
)%
 
(12.3
)%
Diluted earnings per share
 
$
0.56

 
$
0.64

 
$
0.63

 
(12.5
)
 
(11.1
)
Weighted-average basic shares outstanding
 
2,516

 
2,506

 
2,477

 
0.4

 
1.6

Weighted-average diluted shares outstanding
 
2,578

 
2,566

 
2,558

 
0.5

 
0.8

Common shares outstanding at period-end
 
2,550

 
2,544

 
2,524

 
0.3

 
1.0

Book value per share
 
$
28.59

 
$
28.15

 
$
26.36

 
1.6
 %
 
8.5
 %
 


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CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, unaudited)
 
 
For the Quarter Ended:
 
 
 
 
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Interest income
 
$
8,773

 
$
8,948

 
$
7,450

 
(2.0
)%
 
17.8
 %
Interest expense
 
1,784

 
1,701

 
1,023

 
4.9

 
74.4

Net interest income
 
6,989

 
7,247

 
6,427

 
(3.6
)
 
8.7

(Recapture) Provision for loan losses
 
(200
)
 
25

 
100

 
(900.0
)
 
(300.0
)
Net interest income after (recapture) provision for loan losses
 
7,189

 
7,222

 
6,327

 
(0.5
)
 
13.6

Noninterest income:
 
 
 
 
 
 
 
 
 
 
Service charges and fee income
 
447

 
450

 
460

 
(0.7
)
 
(2.8
)
Earnings on cash surrender value of bank-owned life insurance
 
108

 
11

 
79

 
881.8

 
36.7

Mortgage servicing (loss) income
 
(82
)
 
115

 
220

 
(171.3
)
 
(137.3
)
Net gain on sale of loans
 
535

 
284

 
374

 
88.4

 
43.0

Total noninterest income
 
1,008

 
860

 
1,133

 
17.2

 
(11.0
)
Noninterest expense:
 
 
 
 
 
 
 
 
 
 
Salaries and benefits
 
3,639

 
3,252

 
3,141

 
11.9

 
15.9

Operations
 
1,634

 
1,653

 
1,239

 
(1.1
)
 
31.9

Regulatory assessments
 
113

 
104

 
101

 
8.7

 
11.9

Occupancy
 
506

 
503

 
474

 
0.6

 
6.8

Data processing
 
500

 
579

 
453

 
(13.6
)
 
10.4

Net loss and expenses on OREO and repossessed assets
 
3

 
24

 
27

 
(87.5
)
 
(88.9
)
Total noninterest expense
 
6,395

 
6,115

 
5,435

 
4.6

 
17.7

Income before provision for income taxes
 
1,802

 
1,967

 
2,025

 
(8.4
)
 
(11.0
)
Provision for income taxes
 
358

 
325

 
423

 
10.2

 
(15.4
)
Net income
 
$
1,444

 
$
1,642

 
$
1,602

 
(12.1
)%
 
(9.9
)%

  
 

8



CONSOLIDATED BALANCE SHEET
(Dollars in thousands, unaudited)
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
72,536

 
$
61,810

 
$
64,689

 
17.4
 %
 
12.1
 %
Available-for-sale securities, at fair value
 
4,955

 
4,957

 
5,268

 

 
(5.9
)
Loans held-for-sale
 
490

 
1,172

 
950

 
(58.2
)
 
(48.4
)
Loans held-for-portfolio
 
584,501

 
619,543

 
559,979

 
(5.7
)
 
4.4

Allowance for loan losses
 
(5,577
)
 
(5,774
)
 
(5,328
)
 
(3.4
)
 
4.7

Total loans held-for-portfolio, net
 
578,924

 
613,769

 
554,651

 
(5.7
)
 
4.4

Accrued interest receivable
 
2,228

 
2,287

 
1,962

 
(2.6
)
 
13.6

Bank-owned life insurance, net
 
13,625

 
13,365

 
13,075

 
1.9

 
4.2

Other real estate owned ("OREO") and other repossessed assets, net
 
1,069

 
575

 
638

 
85.9

 
67.6

Mortgage servicing rights, at fair value
 
3,286

 
3,414

 
3,532

 
(3.7
)
 
(7.0
)
Federal Home Loan Bank ("FHLB") stock, at cost
 
1,860

 
4,134

 
3,014

 
(55.0
)
 
(38.3
)
Premises and equipment, net
 
6,833

 
7,044

 
7,545

 
(3.0
)
 
(9.4
)
Right-of-use assets
 
8,136

 

 

 
nm

 
nm

Other assets
 
3,687

 
4,208

 
4,207

 
(12.4
)
 
(12.4
)
TOTAL ASSETS
 
$
697,629

 
$
716,735

 
$
659,531

 
(2.7
)
 
5.8

LIABILITIES
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
 
$
485,033

 
$
457,535

 
$
444,918

 
6.0

 
9.0

Noninterest-bearing deposits
 
98,648

 
96,066

 
84,275

 
2.7

 
17.1

Total deposits
 
583,681

 
553,601

 
529,193

 
5.4

 
10.3

Borrowings
 
25,000

 
84,000

 
56,000

 
(70.2
)
 
(55.4
)
Accrued interest payable
 
201

 
137

 
81

 
46.7

 
148.1

Lease liabilities
 
8,408

 

 

 
nm

 
nm

Other liabilities
 
6,089

 
6,681

 
6,605

 
(8.9
)
 
(7.8
)
Advance payments from borrowers for taxes and insurance
 
1,327

 
689

 
1,106

 
92.6

 
20.0

TOTAL LIABILITIES
 
624,706

 
645,108

 
592,985

 
(3.2
)
 
5.3

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
 
 
 
Common stock
 
25

 
25

 
25

 

 

Additional paid-in capital
 
25,802

 
25,663

 
25,104

 
0.5

 
2.8

Unearned shares – Employee Stock Ownership Plan ("ESOP")
 
(312
)
 
(340
)
 
(453
)
 
(8.2
)
 
(31.1
)
Retained earnings
 
47,252

 
46,165

 
41,792

 
2.4

 
13.1

Accumulated other comprehensive income, net of tax
 
156

 
114

 
78

 
36.8

 
100.0

TOTAL STOCKHOLDERS' EQUITY
 
72,923

 
71,627

 
66,546

 
1.8

 
9.6

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
697,629

 
$
716,735

 
$
659,531

 
(2.7
)%
 
5.8
 %

nm = not meaningful

9



LOANS
(Dollars in thousands, unaudited)
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Real estate loans:
 
 
 
 
 
 
 
 
 
 
One-to-four family
 
$
151,422

 
$
169,830

 
$
162,294

 
(10.8
)%
 
(6.7
)%
Home equity
 
24,466

 
27,655

 
27,638

 
(11.5
)
 
(11.5
)
Commercial and multifamily
 
245,417

 
252,644

 
221,255

 
(2.9
)
 
10.9

Construction and land
 
66,400

 
65,259

 
60,789

 
1.7

 
9.2

Total real estate loans
 
487,705

 
515,388

 
471,976

 
(5.4
)
 
3.3

Consumer Loans:
 
 
 
 
 
 
 
 
 
 
Manufactured homes
 
20,533

 
20,145

 
17,480

 
1.9

 
17.5

Floating homes
 
39,016

 
40,806

 
29,110

 
(4.4
)
 
34.0

Other consumer
 
7,126

 
6,628

 
5,462

 
7.5

 
30.5

Total consumer loans
 
66,675

 
67,579

 
52,052

 
(1.3
)
 
28.1

Commercial business loans
 
32,046

 
38,804

 
37,854

 
(17.4
)
 
(15.3
)
Total loans
 
586,426

 
621,771

 
561,882

 
(5.7
)
 
4.4

Less:
 
 
 
 
 
 
 
 
 
 
Deferred fees
 
(1,925
)
 
(2,228
)
 
(1,903
)
 
(13.6
)
 
1.2

Allowance for loan losses
 
(5,577
)
 
(5,774
)
 
(5,328
)
 
(3.4
)
 
4.7

Total loans held for portfolio, net
 
$
578,924

 
$
613,769

 
$
554,651

 
(5.7
)%
 
4.4
 %



DEPOSITS
(Dollars in thousands, unaudited)
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Noninterest-bearing
 
$
98,648

 
$
96,066

 
$
84,275

 
2.7
 %
 
17.1
 %
Interest-bearing
 
153,607

 
164,919

 
178,629

 
(6.9
)
 
(14.0
)
Savings
 
54,951

 
54,102

 
50,336

 
1.6

 
9.2

Money market
 
49,162

 
46,689

 
49,457

 
5.3

 
(0.6
)
Certificates
 
227,313

 
191,825

 
166,496

 
18.5

 
36.5

Total deposits
 
$
583,681

 
$
553,601

 
$
529,193

 
5.4
 %
 
10.3
 %


10



CREDIT QUALITY DATA
(Dollars in thousands, unaudited)
 
 
 
At or For the Quarter Ended:
 
 
 
 
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Nonaccrual loans
 
$
2,364

 
$
2,541

 
$
1,793

 
(7.0
)%
 
31.8
 %
Nonperforming TDRs
 
220

 
126

 
132

 
74.6

 
66.7

Total nonperforming loans
 
2,584

 
2,667

 
1,925

 
(3.1
)
 
34.2

OREO and other repossessed assets
 
1,069

 
575

 
638

 
85.9

 
67.6

Total nonperforming assets
 
$
3,653

 
$
3,242

 
$
2,563

 
12.7

 
42.5

Performing TDRs on accrual
 
$
1,859

 
$
1,973

 
$
3,246

 
(5.8
)
 
(42.7
)
Net recoveries (charge-offs) during the quarter
 
3

 
1

 
(13
)
 
(200.0
)
 
123.1

(Recapture) provision for loan losses during the quarter
 
(200
)
 
25

 
100

 
(900.0
)
 
(300.0
)
Allowance for loan losses
 
5,577

 
5,774

 
5,328

 
(3.4
)
 
4.7

Allowance for loan losses to total loans
 
0.95
%
 
0.93
%
 
0.95
%
 
2.2
 %
 

Allowance for loan losses to total nonperforming loans
 
215.83
%
 
216.50
%
 
276.78
%
 
(0.3
)%
 
(22.0
)
Nonperforming loans to total loans
 
0.44
%
 
0.43
%
 
0.34
%
 
2.3
 %
 
29.4

Nonperforming assets to total assets
 
0.52
%
 
0.45
%
 
0.39
%
 
15.6
 %
 
33.3
 %


OTHER STATISTICS
(Dollars in thousands, unaudited)
 
 
At or For the Quarter Ended:
 
 
 
 
 
 
Mar. 31,
2019
 
Dec. 31,
2018
 
Mar. 31,
2018
 
Sequential Quarter
% Change
 
Year over Year
% Change
Sound Community Bank:
 
 
 
 
 
 
 
 
 
 
Loan to deposit ratio
 
100.22
%
 
112.12
%
 
104.81
%
 
(10.6
)%
 
(4.4
)%
Noninterest-bearing deposits / total deposits
 
16.90
%
 
17.35
%
 
15.93
%
 
(2.6
)%
 
6.1
 %
Sound Financial Bancorp, Inc.:
 
 
 
 
 
 
 
 
 
 
Average total assets for the quarter
 
$
716,997

 
$
718,227

 
$
639,741

 
(0.2
)%
 
12.1
 %
Average total equity for the quarter
 
$
72,942

 
$
71,287

 
$
66,245

 
2.3
 %
 
10.1
 %


11



Media:
 
Financial:
 
Laurie Stewart
 
Daphne Kelley
 
President/CEO
 
EVP/CFO
 
(206) 448-0884 x306
 
(206) 448-0884 x305
 


12
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