Sound Financial Bancorp, Inc. Earns $994,000 in the Third Quarter of 2013,
We are pleased to report another strong quarter in terms of revenue as well as continued strength in loan production across numerous asset classes,” said, President and CEO, Laurie Stewart. “We remain focused on delivering a variety of loan offerings including single-family mortgage, multi-family apartments and commercial real estate, as well as small business and consumer loans, to meet the credit needs in our market.”
The Company also announced today that its Board of Directors declared a cash dividend on Sound Financial Bancorp common stock of $0.05 per share, payable on November 27, 2013 to stockholders of record as of the close of business on November 13, 2013.
Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on a holding company and bank level at September 30, 2013
Net interest income increased by $461,000 or 11.7% to $4.4 million in the third quarter of 2013, compared to $3.9 million in the third quarter a year ago, primarily due to higher average loan balances and lower cost of funds. Net interest income for the second quarter of 2013 was $4.3 million.
The net interest margin was 4.55% for the third quarter of 2013, compared to 4.91% for the third quarter of 2012, and 4.68% for the second quarter of 2013. The decline in the net interest margin in the third quarter of 2013 as compared to a year ago was primarily due to lower loan yields due to the continued low interest rate environment.
The provision for loan losses in the third quarter of 2013 was $450,000, compared to $1.1 million for the third quarter a year ago and $450,000 for the second quarter of 2013. The decline in the third quarter of 2013 as compared to a year ago was primarily due to lower charge-offs and lower average balances of nonperforming loans which was partially offset by higher average loan balances and changes in the asset mix of our loan portfolio. Net charge-offs totaled $464,000 for the third quarter of 2013, compared to net charge-offs of $1.2 million for the third quarter of 2012.
Noninterest income decreased by $181,000, or 15.0% to $1.0 million in the third quarter of 2013, compared to $1.2 million in the third quarter a year ago, primarily due to $631,000 decrease in the gain on sale of loans partially offset by a $514,000 improvement in other noninterest income. Noninterest income for the second quarter of 2013 was $1.4 million. The gain on sale of loans declined during the third quarter as compared to the prior quarter due to reduced refinancing activity due to an increase in mortgage interest rates. Other noninterest income was favorably impacted by a $271,000 fair value adjustment on mortgage servicing rights primarily due to slower prepayment speeds in our mortgage servicing portfolio during the recent nine month period.
Total noninterest expense for the third quarter of 2013 was $3.6 million, up 12.0% compared to $3.2 million for the third quarter of 2012 and down 0.1% compared to $3.6 million for the second quarter of 2013. The increase in noninterest expense from a year ago was primarily due to increased compensation expenses paid to commission-based employees as a result of increased loan demand and an increase in full time equivalent (FTE) employees from 77.1 as of September 30, 2012 to 85.2 as of September 30, 2013.
The efficiency ratio for the third quarter of 2013 was 63.34%, compared to 56.67% for the third quarter of 2012, and 59.74% for the second quarter of 2013. The increase in the efficiency ratio in the third quarter of 2013 compared to a year ago was primarily due to lower noninterest income and higher salary and benefit expenses associated with the additional FTEs during the current period.
Balance Sheet Review, Capital Management and Credit Quality
The Company's total assets increased 13.3% to $431.7 million at September 30, 2013, from $381.0 million at December 31, 2012. This increase was primarily a result of higher loan balances which increased $53.0 million from the end of 2012, primarily due to a $20.9 million increase in one- to four-family residential loans, an $18.3 million increase in construction and land loans, and a $15.1 million increase in commercial and multifamily loans, reflecting the improvement in the housing market and overall economy in the communities we serve.
Loans, excluding loans held-for-sale, totaled $379.8 million at September 30, 2013, an increase of 16.2% from $326.7 million at December 31, 2012. The loan portfolio remains well-diversified with commercial real estate loans accounting for 38.9% of the portfolio, of which 27.9% were owner-occupied. One- to four-family residential loans accounting for 30.5% of the portfolio; home equity, manufactured and other consumer loans accounting for 15.3% of the portfolio; construction and land loans accounting for 11.4% of the portfolio; and commercial and industrial loans accounting for the remaining 3.9% of total loans at September 30, 2013.
The weighted average yield on the loan portfolio was 5.43% for the third quarter of 2013, compared to 5.77% for the same period in 2012, and 5.66% for the second quarter of 2013.
The investment securities available-for-sale portfolio totaled $16.6 million at September 30, 2013, compared to $22.9 million at December 31, 2012. At September 30, 2013, the securities available-for-sale portfolio was comprised of $12.2 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $2.5 million in private-label mortgage-backed securities and $1.9 million in municipal bonds.
Nonperforming assets ("NPAs"), which include non-accrual loans, accruing loans 90 days and more delinquent, and foreclosed assets, totaled $2.9 million, or 0.67% of total assets, at September 30, 2013, compared to $6.9 million, or 1.88% of total assets, a year ago and $6.4 million, or 1.68% of total assets at December 31, 2012.
The following table summarizes our NPAs at September 30, 2013 and December 31, 2012:
| | | Sept 30, 2013 | | | Dec 31, 2012 | |
| | | Balance | | | % of Total | | | Balance | | | % of Total | |
| Nonperforming loans: | | | | | | | | | | | | |
| (in $000's, unaudited) | | | | | | | | | | | | |
| One- to four- family | | $ | 1,005 | | | | 34.6 | % | | $ | 1,143 | | | | 17.8 | % |
| Home equity loans | | | 622 | | | | 21.4 | % | | | 717 | | | | 11.2 | % |
| Commercial and multifamily | | | 230 | | | | 7.9 | % | | | 1,347 | | | | 21.0 | % |
| Construction and land loans | | | - | | | NM | | | | 471 | | | | 7.3 | % |
| Manufactured | | | 65 | | | | 2.3 | % | | | 29 | | | | 0.5 | % |
| Other consumer | | | - | | | NM | | | | 8 | | | | 0.1 | % |
| Commercial business | | | - | | | NM | | | | 197 | | | | 3.1 | % |
| Total nonperforming loans | | $ | 1,922 | | | | 66.2 | % | | $ | 3,912 | | | | 61.0 | % |
| OREO and repossessed assets: | | | | | | | | | | | | | | | | |
| One- to four- family | | | 898 | | | | 30.9 | % | | | 1,318 | | | | 20.5 | % |
| Commercial and multifamily | | | - | | | NM | | | | 1,073 | | | | 16.7 | % |
| Manufactured | | | 83 | | | | 2.9 | % | | | 112 | | | | 1.7 | % |
| Total OREO and repossessed assets | | | 981 | | | | 33.8 | % | | | 2,503 | | | | 39.0 | % |
| Total nonperforming assets | | $ | 2,903 | | | | 100.0 | % | | $ | 6,415 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | |
The following table summarizes the allowance for loan losses:
| | | For the Quarter Ended: | |
| | | Sept 30, | | | June 30, | | | Sept 30, | |
| | | 2013 | | | 2013 | | | 2012 | |
| ALLOWANCE FOR LOAN LOSSES | | | | | | | | | |
| (in $000's, unaudited) | | | | | | | | | |
| Balance at beginning of quarter | | $ | 4,129 | | | $ | 4,046 | | | $ | 4,449 | |
| Provision for loan losses during the quarter | | | 450 | | | | 450 | | | | 1,075 | |
| Net charge-offs during the quarter | | | (464 | ) | | | (367 | ) | | | (1,191 | ) |
| Balance at end of quarter | | $ | 4,115 | | | $ | 4,129 | | | $ | 4,333 | |
| | | | | | | | | | | | | |
| Gross loans | | $ | 379,786 | | | $ | 358,659 | | | $ | 308,998 | |
| Total nonperforming loans | | $ | 1,922 | | | $ | 1,868 | | | $ | 4,344 | |
| | | | | | | | | | | | | |
| Allowance for loan losses to total loans | | | 1.08 | % | | | 1.15 | % | | | 1.40 | % |
| Allowance for loan losses to total nonperforming loans | | | 214.1 | % | | | 221.04 | % | | | 99.75 | % |
The decrease in the allowance for loan losses at September 30, 2013, compared to September 30, 2012, was primarily due to improved credit metrics of our loan portfolio, as well as a decrease in net charge-offs. Net charge-offs totaled $464,000 for the third quarter of 2013, compared to net charge-offs of $1.2 million for the third quarter of 2012, and net charge-offs of $367,000 for the second quarter of 2013.
Deposits increased to $341.3 million at September 30, 2013, compared to $312.1 million at December 31, 2012. Borrowings from the FHLB of Seattle increased to $40.4 million at September 30, 2013, compared to $21.9 million at December 31, 2012.
Non-GAAP Financial Measures
Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company's management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors seeking to evaluate the Company without giving effect to goodwill and other intangible assets. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
The following table provides reconciliations of ending shareholders’ equity (GAAP) to ending tangible common equity (non-GAAP), and ending assets (GAAP) to ending tangible assets (non-GAAP).
| (Dollars in thousands, except per share data) | | Sept 30, 2013 | | | Dec 31, 2012 | | | Sept 30, 2012 | |
| | | | | | | | | | |
| Total shareholders' equity | | $ | 45,923 | | | $ | 43,457 | | | $ | 42,296 | |
| Subtract: | | | | | | | | | | | | |
Goodwill and other intangible assets, net (excluding MSRs)(1) | | | 661 | | | | 753 | | | | 784 | |
| Tangible common shareholders' equity | | $ | 45,262 | | | $ | 42,704 | | | $ | 41,512 | |
| | | | | | | | | | | | | |
| Total assets | | $ | 431,728 | | | $ | 381,044 | | | $ | 366,498 | |
| Subtract: | | | | | | | | | | | | |
| Goodwill and other intangible assets, net (excluding MSRs) | | | 661 | | | | 753 | | | | 784 | |
| Tangible assets | | $ | 431,067 | | | $ | 380,291 | | | $ | 365,714 | |
| | | | | | | | | | | | | |
| Common shares outstanding at period end | | | 2,586,810 | | | | 2,587,544 | | | | 2,587,544 | |
| | | | | | | | | | | | | |
| Tangible common equity ratio | | | 10.50 | % | | | 11.23 | % | | | 11.35 | % |
| Tangible book value per common share | | $ | 17.50 | | | $ | 16.50 | | | $ | 16.04 | |
(1) Mortgage servicing rights, another intangible asset, have not been excluded from tangible common equity because the Company believes that they have a real market value and can be readily sold.
Sound Financial Bancorp, Inc., a bank holding company established in August 2012, is the parent company of Sound Community Bank, established in 1953 and headquartered in Seattle, Washington with full-service branches in Seattle, Tacoma, Mountlake Terrace, Sequim and Port Angeles. Sound Community Bank is a Fannie Mae Approved Lender and Seller/Servicer with an additional Loan Production Office in Madison Park neighborhood of Seattle, Washington. For more information, please visit www.soundcb.com.
Forward Looking Statement Disclaimer
“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains statements that are not historical or current fact and constitute forward-looking statements. In some cases, you can identify these statements by words such as "may", "might", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential", or "continue", the negative of these terms and other comparable terminology. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business.
These statements are only predictions based on our current expectations and projections about future events, and there are or may be important factors that could cause our actual results for 2013 and beyond to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.
There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially, include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, consumer and other loans, real estate values, competition, changes in accounting principles, policies or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.
| | |
| | | For the Quarter Ended: | | | Percent Change From: | |
| CONSOLIDATED INCOME STATEMENTS | | Sept 30, | | | June 30, | | | Sept 30, | | | June 30, | | | Sept 30, | |
| (in $000's, unaudited) | | 2013 | | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Interest income | | $ | 4,985 | | | $ | 4,886 | | | $ | 4,542 | | | | 2.0 | % | | | 9.8 | % |
| Interest expense | | | 578 | | | | 544 | | | | 596 | | | | 6.3 | % | | | -3.0 | % |
| Net interest income before provision for loan losses | | | 4,407 | | | | 4,342 | | | | 3,946 | | | | 1.5 | % | | | 11.7 | % |
| Provision for loan losses | | | 450 | | | | 450 | | | | 1,075 | | | | 0.0 | % | | | -58.1 | % |
| Net interest income after provision for loan losses | | | 3,957 | | | | 3,892 | | | | 2,871 | | | | 1.7 | % | | | 37.8 | % |
| Noninterest income: | | | | | | | | | | | | | | | | | | | | |
| Service charges and fee income | | | 564 | | | | 551 | | | | 574 | | | | 2.4 | % | | | -1.7 | % |
| Increase in cash surrender value of life insurance | | | 78 | | | | 74 | | | | 60 | | | | 5.4 | % | | | 30.0 | % |
| Mortgage servicing income, net | | | 76 | | | | 184 | | | | 148 | | | | -58.7 | % | | | -48.6 | % |
| Gain on sale of loans | | | 37 | | | | 310 | | | | 668 | | | | -88.1 | % | | | -94.5 | % |
| Other noninterest income | | | 271 | | | | 239 | | | | (243 | ) | | | 13.4 | % | | | -211.5 | % |
| Total noninterest income | | | 1,026 | | | | 1,358 | | | | 1,207 | | | | -24.4 | % | | | -15.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Noninterest expense: | | | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | | | 1,858 | | | | 1,705 | | | | 1,537 | | | | 9.0 | % | | | 20.9 | % |
| Operations expense | | | 825 | | | | 991 | | | | 697 | | | | -16.8 | % | | | 18.4 | % |
| Data processing | | | 348 | | | | 318 | | | | 264 | | | | 9.4 | % | | | 31.8 | % |
| Losses and expenses related to OREO | | | 125 | | | | 164 | | | | 265 | | | | -23.8 | % | | | -52.8 | % |
| Other noninterest expense | | | 410 | | | | 391 | | | | 422 | | | | 4.9 | % | | | -2.8 | % |
| Total noninterest expense | | | 3,566 | | | | 3,569 | | | | 3,185 | | | | -0.1 | % | | | 12.0 | % |
| Income before income taxes | | | 1,417 | | | | 1,681 | | | | 893 | | | | -15.7 | % | | | 58.7 | % |
| Income tax expense | | | 423 | | | | 539 | | | | 281 | | | | -21.5 | % | | | 50.5 | % |
| Net income | | $ | 994 | | | $ | 1,142 | | | $ | 612 | | | | -13.0 | % | | | 62.4 | % |
| | | | | | | | | | | | | | | | | | | | | |
| PER COMMON SHARE DATA | | | | | | | | | | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share | | $ | 0.38 | | | $ | 0.44 | | | $ | 0.24 | | | | -13.6 | % | | | 58.3 | % |
| Diluted earnings per share | | $ | 0.38 | | | $ | 0.43 | | | $ | 0.23 | | | | -11.6 | % | | | 65.2 | % |
| Common shares outstanding at period-end | | | 2,586,810 | | | | 2,586,810 | | | | 2,587,544 | | | | 0.0 | % | | | 0.0 | % |
| Book value per share | | $ | 17.75 | | | $ | 17.59 | | | $ | 16.34 | | | | 0.9 | % | | | 8.6 | % |
| Tangible book value per share | | $ | 17.50 | | | $ | 17.32 | | | $ | 16.04 | | | | 1.0 | % | | | 9.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
| KEY FINANCIAL RATIOS | | | | | | | | | | | | | | | | | | | | |
| (unaudited) | | | | | | | | | | | | | | | | | | | | |
| Annualized return on average equity | | | 8.64 | % | | | 10.11 | % | | | 6.86 | % | | | -14.5 | % | | | 25.9 | % |
| Annualized return on average tangible equity | | | 8.77 | % | | | 10.28 | % | | | 7.01 | % | | | -14.7 | % | | | 25.1 | % |
| Annualized return on average assets | | | 0.96 | % | | | 1.14 | % | | | 0.67 | % | | | -15.8 | % | | | 43.3 | % |
| Net interest margin | | | 4.55 | % | | | 4.68 | % | | | 4.91 | % | | | -2.8 | % | | | -7.3 | % |
| Efficiency ratio | | | 63.34 | % | | | 59.74 | % | | | 56.67 | % | | | 6.0 | % | | | 11.8 | % |
| | | Quarter Ended: | | | Percent Change From: | |
| CONSOLIDATED BALANCE SHEETS | | Sep 30, | | | Dec 31, | | | Sep 30, | | | Dec 31, | | | Sep 30, | |
| (in $000's, unaudited) | | 2013 | | | 2012 | | | 2012 | | | 2012 | | | 2012 | |
| ASSETS | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 13,961 | | | $ | 12,727 | | | $ | 15,655 | | | | 9.7 | % | | | -10.8 | % |
| Securities available-for-sale, at fair value | | | 16,639 | | | | 22,900 | | | | 20,891 | | | | -27.3 | % | | | -20.4 | % |
| FHLB stock, at cost | | | 2,336 | | | | 2,401 | | | | 2,422 | | | | -2.7 | % | | | -3.6 | % |
| Loans held-for-sale | | | 1,664 | | | | 1,725 | | | | 2,089 | | | | -3.5 | % | | | -20.3 | % |
| Loans: | | | | | | | | | | | | | | | | | | | | |
| One- to four- family residential | | | 114,952 | | | | 94,059 | | | | 92,252 | | | | 22.2 | % | | | 24.6 | % |
| Home equity | | | 35,317 | | | | 35,364 | | | | 35,883 | | | | -0.1 | % | | | -1.6 | % |
| Commercial and multifamily | | | 148,745 | | | | 133,620 | | | | 119,938 | | | | 11.3 | % | | | 24.0 | % |
| Construction and land | | | 43,780 | | | | 25,458 | | | | 20,694 | | | | 72.0 | % | | | 111.6 | % |
| Manufactured homes | | | 13,983 | | | | 16,232 | | | | 17,010 | | | | -13.9 | % | | | -17.8 | % |
| Other consumer | | | 9,393 | | | | 8,650 | | | | 9,085 | | | | 8.6 | % | | | 3.4 | % |
| Commercial business | | | 14,842 | | | | 14,193 | | | | 14,761 | | | | 4.6 | % | | | 0.5 | % |
| Total loans | | | 381,012 | | | | 327,576 | | | | 309,623 | | | | 16.3 | % | | | 23.1 | % |
| Deferred fees, net | | | (1,226 | ) | | | (832 | ) | | | (625 | ) | | | 47.4 | % | | | 96.2 | % |
| Total loans, including deferred fees, net | | | 379,786 | | | | 326,744 | | | | 308,998 | | | | 16.2 | % | | | 22.9 | % |
| Allowance for loan losses | | | (4,115 | ) | | | (4,248 | ) | | | (4,333 | ) | | | -3.1 | % | | | -5.0 | % |
| Loans, net | | | 375,671 | | | | 322,496 | | | | 304,665 | | | | 16.5 | % | | | 23.3 | % |
| Accrued interest receivable | | | 1,313 | | | | 1,280 | | | | 1,249 | | | | 2.6 | % | | | 5.1 | % |
| Bank-owned life insurance | | | 10,950 | | | | 7,220 | | | | 7,160 | | | | 51.7 | % | | | 52.9 | % |
| OREO and ORA, net | | | 981 | | | | 2,503 | | | | 2,548 | | | | -60.8 | % | | | -61.5 | % |
| Mortgage servicing rights, at fair value | | | 2,843 | | | | 2,306 | | | | 2,314 | | | | 23.3 | % | | | 22.9 | % |
| Premises and equipment, net | | | 2,174 | | | | 2,256 | | | | 2,237 | | | | -3.6 | % | | | -2.8 | % |
| Other assets | | | 3,196 | | | | 3,230 | | | | 5,268 | | | | -1.1 | % | | | -39.3 | % |
| Total assets | | $ | 431,728 | | | $ | 381,044 | | | $ | 366,498 | | | | 13.3 | % | | | 17.8 | % |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Demand deposit, noninterest-bearing | | $ | 34,575 | | | $ | 35,234 | | | $ | 33,307 | | | | -1.9 | % | | | 3.8 | % |
| Demand deposit, interest-bearing | | | 56,320 | | | | 28,540 | | | | 25,331 | | | | 97.3 | % | | | 122.3 | % |
| Savings and money market | | | 94,105 | | | | 113,323 | | | | 117,931 | | | | -17.0 | % | | | -20.2 | % |
| Time deposits | | | 156,342 | | | | 134,986 | | | | 136,475 | | | | 15.8 | % | | | 14.6 | % |
| Total deposits | | | 341,342 | | | | 312,083 | | | | 313,044 | | | | 9.4 | % | | | 9.0 | % |
| Borrowings | | | 40,381 | | | | 21,864 | | | | 8,024 | | | | 84.7 | % | | | 403.3 | % |
| Accrued interest payable and other liabilities | | | 4,082 | | | | 3,640 | | | | 3,134 | | | | 12.1 | % | | | 30.2 | % |
| Total liabilities | | | 385,805 | | | | 337,587 | | | | 324,202 | | | | 14.3 | % | | | 19.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity: | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 26 | | | | 26 | | | | 26 | | | | 0.0 | % | | | 0.0 | % |
| Paid-in capital | | | 24,370 | | | | 24,789 | | | | 24,722 | | | | -1.7 | % | | | -1.4 | % |
| Unearned shared – ESOP | | | (1,598 | ) | | | (1,598 | ) | | | (1,827 | ) | | | 0.0 | % | | | -12.5 | % |
| Retained earnings | | | 23,410 | | | | 20,736 | | | | 19,848 | | | | 12.9 | % | | | 17.9 | % |
| Accumulated other comprehensive loss | | | (285 | ) | | | (496 | ) | | | (473 | ) | | | -42.5 | % | | | -39.7 | % |
| Total shareholders' equity | | | 45,923 | | | | 43,457 | | | | 42,296 | | | | 5.7 | % | | | 8.6 | % |
| Total liabilities and shareholders' equity | | $ | 431,728 | | | $ | 381,044 | | | $ | 366,498 | | | | 13.3 | % | | | 17.8 | % |
