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EXCEL - IDEA: XBRL DOCUMENT - Sound Financial Bancorp, Inc.Financial_Report.xls
EX-31.2 - SFBC FORM 10-Q 06-30-14 EXHIBIT 31.2 - Sound Financial Bancorp, Inc.sfbcform10qex312.htm
EX-32 - SFBC FORM 10-Q 06-30-14 EXHIBIT 32 - Sound Financial Bancorp, Inc.sfbcform10qex32.htm
EX-31.1 - SFBC FORM 10-Q 06-30-14 EXHIBIT 31.1 - Sound Financial Bancorp, Inc.sfbcform10qex311.htm
EX-10.14 - SFBC FORM 10-Q EXHIBIT 10.14 - Sound Financial Bancorp, Inc.sfbcex1014boardresolution.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
__________
FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to 

COMMISSION FILE NUMBER 001-35633

Sound Financial Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)

Maryland
 
45-5188530
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2005 5th Avenue, Suite 200, Seattle, Washington
 
98121
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code:  (206) 448-0884

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES [X]  NO [   ]

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES [X]   NO [   ]

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting Company.  See definition of "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Act.

Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [  ]
Smaller reporting company [X]
 
 
(Do not check if smaller reporting company)
 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [   ]    NO [X]


Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.

As of August 12, 2014, there were 2,515,920 shares of the registrant's common stock outstanding.



SOUND FINANCIAL BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS

 
Page Number
PART I    FINANCIAL INFORMATION
 
 
Item 1.      Financial Statements 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)
 
3
Condensed Consolidated Statements of Income for the Three and Six Month Periods Ended June 30, 2014 and 2013 (unaudited)
 
4
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Month Periods Ended June 30, 2014 and 2013 (unaudited)
 
5
Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)
 
7
Selected Notes to Condensed Consolidated Financial Statements
 
8
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
 
27
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
37
Item 4.    Controls and Procedures
 
37
PART II
 
OTHER INFORMATION
 
 
Item 1.
 
Legal Proceedings
 
38
Item 1A
 
Risk Factors
 
38
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
38
Item 3.
 
Defaults Upon Senior Securities
 
38
Item 4.
 
Mine Safety Disclosures
 
38
Item 5.
 
Other Information
 
38
Item 6.
 
Exhibits
 
39
SIGNATURES
 
 
EXHIBITS
 


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share amounts)


 
 
June 30, 2014
   
December 31, 2013
 
ASSETS
 
   
 
Cash and cash equivalents
 
$
28,866
   
$
15,334
 
Available-for-sale securities, at fair value
   
14,082
     
15,421
 
Loans held for sale
   
1,921
     
130
 
Loans
   
403,938
     
390,926
 
Allowance for loan losses
   
(4,191
)
   
(4,177
)
Total Loans, net
   
399,747
     
386,749
 
Accrued interest receivable
   
1,391
     
1,366
 
Bank-owned life insurance ("BOLI"), net
   
11,235
     
11,068
 
Other real estate owned ("OREO") and repossessed assets, net
   
319
     
1,178
 
Mortgage servicing rights, at fair value
   
2,993
     
2,984
 
Federal Home Loan Bank ("FHLB") stock, at cost
   
2,270
     
2,314
 
Premises and equipment, net
   
2,006
     
2,138
 
Other assets
   
4,110
     
3,929
 
Total assets
   
468,940
     
442,611
 
LIABILITIES
               
Deposits
               
Interest-bearing
   
328,984
     
313,745
 
Noninterest-bearing demand
   
44,928
     
34,594
 
Total deposits
   
373,912
     
348,339
 
Borrowings
   
39,899
     
43,221
 
Accrued interest payable
   
71
     
82
 
Other liabilities
   
6,497
     
4,103
 
Advance payments from borrowers for taxes and insurance
   
374
     
362
 
Total liabilities
   
420,753
     
396,107
 
COMMITMENTS AND CONTINGENCIES (NOTE 7)
   
-
     
-
 
STOCKHOLDERS' EQUITY
               
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued or outstanding
   
-
     
-
 
Common stock, $0.01 par value, 40,000,000 shares authorized, 2,515,920  and 2,510,810 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively
   
25
     
25
 
Additional paid-in capital
   
23,169
     
23,829
 
Unearned shares - Employee Stock Ownership Plan ("ESOP")
   
(1,369
)
   
(1,369
)
Retained earnings
   
26,239
     
24,288
 
Accumulated other comprehensive income (loss), net of tax
   
123
     
(269
)
Total stockholders' equity
   
48,187
     
46,504
 
Total liabilities and stockholders' equity
 
$
468,940
   
$
442,611
 

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share amounts)


 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
INTEREST INCOME
 
   
   
   
 
Loans, including fees
 
$
5,179
   
$
4,838
   
$
10,348
   
$
9,342
 
Interest and dividends on investments, cash and cash equivalents
   
61
     
48
     
95
     
180
 
Total interest income
   
5,240
     
4,886
     
10,443
     
9,522
 
INTEREST EXPENSE
                               
Deposits
   
552
     
498
     
1,112
     
999
 
Borrowings
   
44
     
46
     
94
     
114
 
Total interest expense
   
596
     
544
     
1,206
     
1,113
 
Net interest income
   
4,644
     
4,342
     
9,237
     
8,409
 
PROVISION FOR LOAN LOSSES
   
200
     
450
     
400
     
700
 
Net interest income after provision for loan losses
   
4,444
     
3,892
     
8,837
     
7,709
 
NONINTEREST INCOME
                               
Service charges and fee income
   
700
     
551
     
1,234
     
1,150
 
Earnings on cash surrender value of bank-owned life insurance
   
86
     
74
     
167
     
152
 
Mortgage servicing income
   
80
     
184
     
33
     
311
 
Fair value adjustment on mortgage servicing rights
   
144
     
250
     
284
     
385
 
Other-than-temporary impairment losses on securities
   
-
     
(11
)
   
-
     
(30
)
Net gain on sale of loans
   
110
     
310
     
187
     
756
 
Total noninterest income
   
1,120
     
1,358
     
1,905
     
2,724
 
NONINTEREST EXPENSE
                               
Salaries and benefits
   
1,958
     
1,705
     
4,025
     
3,392
 
Operations
   
1,009
     
991
     
1,901
     
1,958
 
Regulatory assessments
   
75
     
82
     
135
     
182
 
Occupancy
   
327
     
309
     
613
     
608
 
Data processing
   
328
     
318
     
672
     
606
 
Net loss on OREO and repossessed assets
   
78
     
164
     
161
     
838
 
Total noninterest expense
   
3,775
     
3,569
     
7,507
     
7,584
 
Income before provision for income taxes
   
1,789
     
1,681
     
3,235
     
2,849
 
Provision for income taxes
   
573
     
539
     
1,032
     
910
 
Net income
 
$
1,216
   
$
1,142
   
$
2,203
   
$
1,939
 
 
                               
Earnings per common share:
                               
Basic
 
$
0.48
   
$
0.44
   
$
0.88
   
$
0.75
 
Diluted
 
$
0.47
   
$
0.43
   
$
0.85
   
$
0.74
 
Weighted average number of common shares outstanding:
                               
Basic
   
2,510
     
2,587
     
2,508
     
2,587
 
Diluted
   
2,601
     
2,638
     
2,602
     
2,636
 

See notes to condensed consolidated financial statements



SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(In thousands)


 
 
Three Months Ended June 30,
   
Six Months Ended
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Net income
 
$
1,216
   
$
1,142
   
$
2,203
   
$
1,939
 
Available for sale securities:
                               
Unrealized gains arising during the period,
net of taxes of $135, $48, $202 and $65, respectively
   
261
     
94
     
392
     
126
 
Reclassification adjustments for other-than-temporary
impairment, net of taxes of $0, $4, $0 and $10, respectively
   
-
     
7
     
-
     
20
 
Other comprehensive income, net of tax
   
261
     
101
     
392
     
146
 
Comprehensive income
 
$
1,477
   
$
1,243
   
$
2,595
   
$
2,085
 

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2014 and 2013 (unaudited)
(In thousands, except number of shares)

 
 
Shares
   
Common
 Stock
   
Additional
Paid-in Capital
   
Unearned
ESOP Shares
   
Retained
 Earnings
   
Accumulated Other Comprehensive Loss,
net of tax
   
Total
Stockholders'
Equity
 
Balances at December 31, 2012
   
2,587,544
   
$
26
   
$
24,789
   
$
(1,598
)
 
$
20,736
   
$
(496
)
 
$
43,457
 
Net income
                                   
1,939
             
1,939
 
Other comprehensive income, net of tax
                                           
146
     
146
 
Share-based compensation
                   
84
                             
84
 
Restricted stock forfeited and retired
   
(734
)
                                               
Cash dividends on common stock ($0.05 per share)
                                   
(129
)
           
(129
)
Balances at June 30, 2013
   
2,586,810
   
$
26
   
$
24,873
   
$
(1,598
)
 
$
22,546
   
$
(350
)
 
$
45,497
 

 
 
Shares
   
Common
 Stock
   
Additional
 Paid-in Capital
   
Unearned
ESOP Shares
   
Retained
Earnings
   
Accumulated Other Comprehensive Loss,
 net of tax
   
Total
 Stockholders'
Equity
 
Balances at December 31, 2013
   
2,510,810
   
$
25
   
$
23,829
   
$
(1,369
)
 
$
24,288
   
$
(269
)
 
$
46,504
 
Net income
                                   
2,203
             
2,203
 
Other comprehensive income, net of tax
                                           
392
     
392
 
Share-based compensation
                   
244
                             
244
 
Cash dividends on common stock ($0.05 per share)
                                   
(252
)
           
(252
)
Restricted stock awards issued
   
45,565
                                                 
Common stock repurchased
   
(53,340
)
           
(904
)
                           
(904
)
Exercise of options
   
12,885
                                                 
Balances at June 30, 2014
   
2,515,920
   
$
25
   
$
23,169
   
$
(1,369
)
 
$
26,239
   
$
123
   
$
48,187
 

See notes to condensed consolidated financial statements

 SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Six Months Ended
June 30,
 
 
 
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
 
Net income
 
$
2,203
   
$
1,939
 
Adjustments to reconcile net income to net cash from operating activities
               
Accretion of net premium on investments
   
232
     
279
 
Other-than-temporary impairment losses on securities
   
-
     
30
 
Provision for loan losses
   
400
     
700
 
Depreciation and amortization
   
246
     
223
 
Compensation expense related to stock options and restricted stock
   
244
     
84
 
Fair value adjustment on mortgage servicing rights
   
(284
)
   
(385
)
Additions to mortgage servicing rights
   
(185
)
   
(495
)
Amortization of mortgage servicing rights
   
460
     
516
 
Increase in cash surrender value of BOLI
   
(167
)
   
(152
)
Gain on sale of loans
   
(187
)
   
(756
)
Proceeds from sale of loans
   
18,992
     
74,937
 
Originations of loans held for sale
   
(20,596
)
   
(74,534
)
Loss on sale and write-downs of OREO and repossessed assets
   
52
     
776
 
Change in operating assets and liabilities
               
Accrued interest receivable
   
(25
)
   
(53
)
Other assets
   
(383
)
   
(422
)
Accrued interest payable
   
(11
)
   
(11
)
Other liabilities
   
2,394
     
437
 
Net cash from operating activities
   
3,385
     
3,113
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from principal payments, maturities and sales of available for sale securities
   
1,701
     
5,847
 
FHLB stock redeemed
   
44
     
44
 
Net increase in loans
   
(13,709
)
   
(33,999
)
Improvements to OREO and other repossessed assets
   
(12
)
   
(33
)
Proceeds from sale of OREO and other repossessed assets
   
1,130
     
1,835
 
Purchases of premises and equipment, net
   
(114
)
   
(200
)
Purchases of BOLI
   
-
     
(3,500
)
Net cash used by investing activities
   
(10,960
)
   
(30,006
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in deposits
   
25,573
     
7,431
 
Proceeds from borrowings
   
88,500
     
160,000
 
Repayment of borrowings
   
(91,822
)
   
(141,322
)
Dividends paid on common stock
   
(252
)
   
(129
)
Net change in advances from borrowers for taxes and insurance
   
12
     
(54
)
Repurchase of common stock
   
(904
)
   
-
 
Net cash from financing activities
   
21,107
     
25,926
 
Net decrease in cash and cash equivalents
   
13,532
     
(967
)
Cash and cash equivalents, beginning of period
   
15,334
     
12,727
 
Cash and cash equivalents, end of period
 
$
28,866
   
$
11,760
 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
375
   
$
730
 
Interest paid on deposits and borrowings
 
$
1,217
   
$
1,124
 
Noncash net transfer from loans to OREO and repossessed assets
 
$
311
   
$
1,265
 

See notes to condensed consolidated financial statements

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


Note 1 – Basis of Presentation

The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Sound Financial Bancorp, Inc., and its wholly owned subsidiary, Sound Community Bank.  References in this document to Sound Financial Bancorp refer to Sound Financial Bancorp, Inc. and its predecessor, Sound Financial, Inc., a federal corporation, and references to the "Bank" refer to Sound Community Bank.  References to "we," "us," and "our" or the "Company" means Sound Financial Bancorp and its wholly-owned subsidiary, Sound Community Bank unless the context otherwise requires.

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission ("SEC").  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.  Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.  These unaudited financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 31, 2014 ("2013 Form 10-K").  The results for the interim periods are not necessarily indicative of results for a full year.  For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2013, included in the 2013 Form 10-K.  Certain amounts in the prior quarters' consolidated financial statements have been reclassified to conform to the current presentation.  These classifications do not have an impact on previously reported consolidated net income, retained earnings, stockholders' equity or earnings per share.

Note 2 – Accounting Pronouncements Recently Issued or Adopted

In July 2013, the Financial Accounting Standards Board "FASB" issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  No new recurring disclosures are required.  The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2013 and are to be applied prospectively to all unrecognized tax benefits that exist at the effective date.  Retrospective application is permitted.  The adoption of ASU No. 2013-11 did not have a material impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects.  ASU 2014-04 permits an entity to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and should be applied prospectively.  The Company is currently reviewing the requirements of ASU No. 2014-01, but does not expect the ASU to have a material impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure.  ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2)
the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively.  The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which creates Topic 606 and supersedes Topic 605, Revenue Recognition.  The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.  The standard is effective for public entities for interim and annual periods beginning after December 15, 2016; early adoption is not permitted.  For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application.  The Company is currently evaluating the provisions of ASU No. 2014-09 to determine the potential impact the new standard will have on the Company's consolidated financial statements.


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions.  The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings.  The ASU also requires new and expanded disclosures. This ASU is effective for the first interim or annual period beginning after December 15, 2014.  The adoption of ASU No. 2014-11 is not expected to have a material impact on the Company's consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards.  The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  The amendments in this ASU can be applied prospectively or retrospectively and are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted.  The Company is currently reviewing the requirements of ASU No. 2014-12, but does not expect the ASU to have a material impact on the Company's consolidated financial statements.


Note 3 – Investments

The amortized cost and fair value of our available-for-sale ("AFS") securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated were as follows (in thousands):


 
 
Amortized
Cost
   
Gross
Unrealized Gains
   
Gross
Unrealized Losses
   
Estimated
Fair Value
June 30, 2014
 
   
   
   
Municipal bonds
 
$
1,911
   
$
136
   
$
-
   
$
2,047
Agency mortgage-backed securities
   
9,442
     
91
     
(82
)
   
9,451
Non-agency mortgage-backed securities
   
2,542
     
103
     
(61
)
   
2,584
Total
 
$
13,895
   
$
330
   
$
(143
)
 
$
14,082
December 31, 2013
                             
Municipal bonds
 
$
1,911
   
$
20
   
$
-
   
$
1,931
Agency mortgage-backed securities
   
11,228
     
38
     
(195
)
   
11,071
Non-agency mortgage-backed securities
   
2,689
     
78
     
(348
)
   
2,419
Total
 
$
15,828
   
$
136
   
$
(543
)
 
$
15,421

 
The amortized cost and fair value of AFS securities at June 30, 2014, by contractual maturity, are shown below (in thousands).  Expected maturities of AFS securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
 
At June 30, 2014
 
 
Amortized
Cost
   
Fair
Value
Due in five to ten years
 
$
1,911
   
$
2,047
Due after ten years
   
11,984
     
12,035
Total
 
$
13,895
   
$
14,082

No securities were pledged to secure Washington State Public Funds as of June 30, 2014.  The Company has letters of credit with a notional amount of $36.5 million to secure public deposits which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

There were no sales of AFS securities during the three or six months ended June 30, 2014 and 2013.

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


The following tables summarize at the dates indicated the aggregate fair value and gross unrealized loss by length of time of those investments that have been continuously in an unrealized loss position (in thousands):

 
 
June 30, 2014
 
 
 
Less Than 12 Months
   
12 Months or Longer
   
Total
 
 
 
Fair
Value
   
Unrealized Loss
   
Fair
Value
   
Unrealized Loss
   
Fair
Value
   
Unrealized Loss
 
Agency mortgage-backed securities
 
$
651
   
$
(9
)
 
$
3,643
   
$
(73
)
 
$
4,294
   
$
(82
)
Non-agency mortgage-backed securities
   
-
     
-
     
548
     
(61
)
   
548
     
(61
)
Total
 
$
651
   
$
(9
)
 
$
4,191
   
$
(134
)
 
$
4,842
   
$
(143
)

 
 
December 31, 2013
 
 
 
Less Than 12 Months
   
12 Months or Longer
   
Total
 
 
 
Fair
Value
   
Unrealized Loss
   
Fair
Value
   
Unrealized Loss
   
Fair
Value
   
Unrealized Loss
 
Agency mortgage-backed securities
 
$
1,123
   
$
(29
)
 
$
7,145
   
$
(166
)
 
$
8,268
   
$
(195
)
Non-agency mortgage-backed securities
   
-
     
-
     
636
     
(348
)
   
636
     
(348
)
Total
 
$
1,123
   
$
(29
)
 
$
7,781
   
$
(514
)
 
$
8,904
   
$
(543
)


The following table presents the cumulative roll forward of credit losses recognized in earnings during the three and six months ended June 30, 2014 and 2013 relating to the Company's non- agency mortgage backed securities (in thousands):

 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Estimated credit losses, beginning balance
 
$
450
   
$
439
   
$
450
   
$
420
 
Additions for credit losses not previously recognized
   
-
     
11
     
-
     
30
 
Reduction for increases in cash flows
   
-
     
-
     
-
     
-
 
Reduction for realized losses
   
-
     
-
     
-
     
-
 
Estimated credit losses, ending balance
 
$
450
   
$
450
   
$
450
   
$
450
 


At June 30, 2014, our securities portfolio consisted of 15 agency mortgage-backed securities, five non-agency mortgage-backed securities and five municipal securities with a fair value of $14.1 million.  At December 31, 2013, our securities portfolio consisted of 17 agency mortgage-backed securities, five non-agency mortgage-backed securities and five municipal bonds with a fair value of $15.4 million.  At June 30, 2014, five of the 15 agency mortgage-backed securities were in an unrealized loss position compared to 11 of the 17 agency mortgage-backed securities at December 31, 2013.  All of the agency mortgage-backed securities in an unrealized loss position at June 30, 2014 and December 31, 2013 were issued or guaranteed by U.S. governmental agencies.  The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral.  It is expected that these securities will not be settled at a price less than the amortized cost of each investment.  Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because we do not intend to sell the securities in this class and it is not likely that we will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered an other-than-temporary impairment ("OTTI").


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


As of June 30, 2014, one of the five non-agency mortgage-backed securities was in an unrealized loss position compared to two of the five non-agency mortgage-backed securities in an unrealized loss position at December 31, 2013.  The unrealized loss was caused by changes in interest rates and market illiquidity causing a decline in the fair value subsequent to the purchase.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par.  While management does not intend to sell the non-agency mortgage-backed securities, and it is unlikely that the Company will be required to sell these securities before recovery of its amortized cost basis, management's impairment evaluation indicates that certain securities possess qualitative and quantitative factors that suggest an OTTI.  These factors include, but are not limited to: the length of time and extent of the fair value declines, ratings agency down grades, the potential for an increased level of actual defaults, and the extension in duration of the securities.  In addition to the qualitative factors, management's evaluation includes an assessment of quantitative evidence that involves the use of cash flow modeling and present value calculations as determined by considering the applicable OTTI accounting guidance.  The Company compares the present value of the current estimated cash flows to the present value of the previously estimated cash flows.  Accordingly, if the present value of the current estimated cash flows is less than the present value of the previous period's present value, an adverse change is considered to exist and the security is considered OTTI.  The associated "credit loss" is the amount by which the security's amortized cost exceeds the present value of the current estimated cash flows.  Based upon the results of the cash flow modeling, no security reflected OTTI during the three and six months ended June 30, 2014.  Estimating the expected cash flows and determining the present values of the cash flows involves the use of a variety of assumptions and complex modeling.  In developing its assumptions, the Company considers all available information relevant to the collectability of the applicable security, including information about past events, current conditions, and reasonable and supportable forecasts.  Furthermore, the Company asserts that the cash flows used in the determination of OTTI are its "best estimate" of cash flows.


Note 4 – Loans

The composition of the loan portfolio at the dates indicated, excluding loans held for sale, was as follows (in thousands):
 
 
At June 30, 2014
   
At December 31, 2013
 
Real estate loans:
 
   
 
One- to four- family
 
$
121,690
   
$
117,739
 
Home equity
   
35,222
     
35,155
 
Commercial and multifamily
   
154,017
     
157,516
 
Construction and land
   
47,172
     
44,300
 
Total real estate loans
 
$
358,101
     
354,710
 
Consumer loans:
               
Manufactured homes
   
13,025
     
13,496
 
Other consumer
   
11,764
     
10,284
 
Total consumer loans
   
24,789
     
23,780
 
Commercial business loans
   
22,346
     
13,668
 
Total loans
   
405,236
     
392,158
 
Deferred fees
   
(1,298
)
   
(1,232
)
Total loans, gross
   
403,938
     
390,926
 
Allowance for loan losses
   
(4,191
)
   
(4,177
)
Total loans, net
 
$
399,747
   
$
386,749
 


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2014 (in thousands):

 
 
One- to
four- family
   
Home
equity
   
Commercial
and multifamily
   
Construction
and land
   
Manufactured
 homes
   
Other
consumer
   
Commercial
business
   
Unallocated
   
Total
 
Allowance for loan losses:
 
   
   
   
   
   
   
   
   
 
Individually evaluated for impairment
 
$
280
   
$
133
   
$
-
   
$
26
   
$
72
   
$
1
   
$
-
   
$
-
   
$
512
 
Collectively evaluated for impairment
   
592
     
313
     
1,790
     
234
     
65
     
86
     
137
     
462
     
3,679
 
Ending balance
 
$
872
   
$
446
   
$
1,790
   
$
260
   
$
137
   
$
87
   
$
137
   
$
462
   
$
4,191
 
Loans receivable:
                                                                       
Individually evaluated for impairment
 
$
4,553
   
$
1,624
   
$
2,987
   
$
204
   
$
534
   
$
21
   
$
128
   
$
-
   
$
10,051
 
Collectively evaluated for impairment
   
117,137
     
33,598
     
151,030
     
46,968
     
12,491
     
11,743
     
22,218
     
-
     
395,185
 
Ending balance
 
$
121,690
   
$
35,222
   
$
154,017
   
$
47,172
   
$
13,025
   
$
11,764
   
$
22,346
   
$
-
   
$
405,236
 


The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2013 (in thousands):

 
 
One-to-
four family
   
Home
 equity
   
Commercial
and multifamily
   
Construction
 and land
   
Manufactured
 homes
   
Other
 consumer
   
Commercial
 business
   
Unallocated
   
Total
 
Allowance for  loan losses:
 
   
   
   
   
   
   
   
   
 
Individually evaluated for impairment
 
$
356
   
$
150
   
$
1
   
$
28
   
$
116
   
$
3
   
$
55
   
$
-
   
$
709
 
Collectively evaluated for impairment
   
1,559
     
631
     
299
     
290
     
93
     
106
     
47
     
443
     
3,468
 
Ending balance
 
$
1,915
   
$
781
   
$
300
   
$
318
   
$
209
   
$
109
   
$
102
   
$
443
   
$
4,177
 
Loans receivable:
                                                                       
Individually evaluated for impairment
 
$
4,608
   
$
1,597
   
$
3,716
   
$
209
   
$
646
   
$
32
   
$
503
   
$
-
   
$
11,311
 
Collectively evaluated for impairment
   
113,131
     
33,558
     
153,800
     
44,091
     
12,850
     
10,252
     
13,165
     
-
     
380,847
 
Ending balance
 
$
117,739
   
$
35,155
   
$
157,516
   
$
44,300
   
$
13,496
   
$
10,284
   
$
13,668
   
$
-
   
$
392,158
 


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


The following table summarizes the activity in loan losses for the three months ended June 30, 2014 (in thousands):

 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
925
   
$
-
   
$
-
   
$
(53
)
 
$
872
 
Home equity
   
529
     
(74
)
   
4
     
(13
)
   
446
 
Commercial and multifamily
   
1,832
     
(8
)
   
-
     
(34
)
   
1,790
 
Construction and land
   
240
     
-
     
-
     
20
     
260
 
Manufactured homes
   
186
     
(89
)
   
4
     
36
     
137
 
Other consumer
   
100
     
(26
)
   
4
     
9
     
87
 
Commercial business
   
99
     
-
     
-
     
38
     
137
 
Unallocated
   
265
     
-
     
-
     
197
     
462
 
Total
 
$
4,176
   
$
(197
)
 
$
12
   
$
200
   
$
4,191
 


The following table summarizes the activity in loan losses for the six months ended June 30, 2014 (in thousands):

 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,915
   
$
(65
)
 
$
1
   
$
(979
)
 
$
872
 
Home equity
   
781
     
(108
)
   
33
     
(260
)
   
446
 
Commercial and multifamily
   
300
     
(46
)
   
1
     
1,537
     
1,790
 
Construction and land
   
318
     
-
     
-
     
(58
)
   
260
 
Manufactured homes
   
209
     
(177
)
   
5
     
98
     
137
 
Other consumer
   
109
     
(37
)
   
7
     
8
     
87
 
Commercial business
   
102
     
-
     
-
     
35
     
137
 
Unallocated
   
443
     
-
     
-
     
19
     
462
 
Total
 
$
4,177
   
$
(433
)
 
$
47
   
$
400
   
$
4,191
 


The following table summarizes the activity in loan losses for the three months ended June 30, 2013 (in thousands):

 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,299
   
$
(257
)
 
$
-
   
$
506
   
$
1,548
 
Home equity
   
1,003
     
(74
)
   
4
     
(43
)
   
890
 
Commercial and multifamily
   
527
     
-
     
2
     
54
     
583
 
Construction and land
   
287
     
-
     
-
     
160
     
447
 
Manufactured homes
   
217
     
(30
)
   
-
     
80
     
267
 
Other consumer
   
178
     
(16
)
   
6
     
(14
)
   
154
 
Commercial business
   
200
     
(2
)
   
-
     
(101
)
   
97
 
Unallocated
   
335
     
-
     
-
     
(192
)
   
143
 
Total
 
$
4,046
   
$
(379
)
 
$
12
   
$
450
   
$
4,129
 


The following table summarizes the activity in loan losses for the six months ended June 30, 2013 (in thousands):

 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,417
   
$
(326
)
 
$
     
$
457
   
$
1,548
 
Home equity
   
997
     
(221
)
   
6
     
108
     
890
 
Commercial and multifamily
   
492
     
(192
)
   
34
     
249
     
583
 
Construction and land
   
217
     
(7
)
   
-
     
237
     
447
 
Manufactured homes
   
260
     
(54
)
   
-
     
61
     
267
 
Other consumer
   
146
     
(27
)
   
14
     
21
     
154
 
Commercial business
   
218
     
(46
)
   
-
     
(75
)
   
97
 
Unallocated
   
501
     
-
     
-
     
(358
)
   
143
 
Total
 
$
4,248
   
$
(873
)
 
$
54
   
$
700
   
$
4,129
 



SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


Credit Quality Indicators.  Federal regulations provide for the classification of lower quality loans as substandard, doubtful or loss.  An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.  Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  Assets classified as doubtful have all the weaknesses of currently existing facts, conditions and values.  Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without establishment of a specific loss reserve is not warranted.
When we classify problem loans as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired).  General allowances represent loss reserves which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem loans.  When the Company classifies problem loans as a loss, we charge off such assets in the period in which they are deemed uncollectible.  Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss but possess identified weaknesses are classified as either watch or special mention assets.  Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation ("FDIC"), which can order the establishment of additional loss allowances.  Pass rated loans are loans that are not otherwise classified or criticized.
The following table represents the internally assigned grades as of June 30, 2014 by type of loan (in thousands):

 
 
One- to
four- family
   
Home
equity
   
Commercial and multifamily
   
Construction
and land
   
Manufactured
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Grade:
 
   
   
   
   
   
   
   
 
Pass
 
$
109,889
   
$
30,903
   
$
148,722
   
$
46,513
   
$
11,692
   
$
11,445
   
$
21,948
   
$
381,112
 
Watch
   
10,136
     
3,369
     
3,059
     
557
     
1,271
     
305
     
398
     
19,095
 
Special Mention
   
199
     
13
     
-
     
-
     
-
     
-
     
-
     
212
 
Substandard
   
1,466
     
937
     
2,236
     
102
     
62
     
14
     
-
     
4,817
 
Doubtful
   
--
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
   Total
 
$
121,690
   
$
35,222
   
$
154,017
   
$
47,172
   
$
13,025
   
$
11,764
   
$
22,346
   
$
405,236
 


The following table represents the internally assigned grades as of December 31, 2013 by type of loan (in thousands):

 
 
One- to
four- family
   
Home
equity
   
Commercial and multifamily
   
Construction
and land
   
Manufactured
homes
   
Other
consumer
   
Commercial
business
   
Total
 
Grade:
 
   
   
   
   
   
   
   
 
Pass
 
$
106,044
   
$
30,940
   
$
151,461
   
$
43,436
   
$
11,966
   
$
9,812
   
$
12,821
   
$
366,480
 
Watch
   
9,854
     
3,340
     
3,100
     
761
     
1,454
     
448
     
365
     
19,322
 
Special Mention
   
46
     
98
     
2,135
     
-
     
-
     
-
     
482
     
2,761
 
Substandard
   
1,795
     
777
     
820
     
103
     
76
     
24
     
-
     
3,595
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
   Total
 
$
117,739
   
$
35,155
   
$
157,516
   
$
44,300
   
$
13,496
   
$
10,284
   
$
13,668
   
$
392,158
 


Nonaccrual and Past Due Loans.  Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are automatically placed on nonaccrual once the loan is 90 days past due or sooner if, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.

The following table presents the recorded investment in nonaccrual loans as of June 30, 2014 and December 31, 2013, by type of loan (in thousands):
 
 
June 30, 2014
   
December 31, 2013
 
One- to four- family
 
$
375
   
$
401
 
Home equity
   
303
     
124
 
Manufactured homes
   
-
     
32
 
Other consumer
   
-
     
1
 
Total
 
$
678
   
$
558
 



SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


The following table represents the aging of the recorded investment in past due loans as of June 30, 2014 by type of loan (in thousands):

 
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
90 Days and
Greater Past Due
   
90 Days and Greater Past Due and Still Accruing
   
Total
Past Due
   
Current
   
Total
Loans
 
One-to four- family
 
$
-
   
$
477
   
$
375
   
$
108
   
$
960
   
$
120,730
   
$
121,690
 
Home equity
   
473
     
150
     
166
     
-
     
789
     
34,433
     
35,222
 
Commercial and multifamily
   
813
     
-
     
-
     
-
     
813
     
153,204
     
154,017
 
Construction and land
   
55
     
-
     
-
     
-
     
55
     
47,117
     
47,172
 
Manufactured homes
   
74
     
7
     
-
     
14
     
95
     
12,930
     
13,025
 
Other consumer
   
7
     
5
     
-
     
-
     
12
     
11,752
     
11,764
 
Commercial business
   
-
     
-
     
-
     
-
     
-
     
22,346
     
22,346
 
Total
 
$
1,422
   
$
639
   
$
541
   
$
122
   
$
2,724
   
$
402,512
   
$
405,236
 


The following table represents the aging of the recorded investment in past due loans as of December 31, 2013 by type of loan (in thousands):

 
 
30-59 Days
Past Due
   
60-89 Days
Past Due
   
90 Days and
Greater Past Due
   
90 Days and Greater Past Due and Still Accruing
   
Total
Past Due
   
Current
   
Total
 Loans
 
One-to four- family
 
$
1,460
   
$
537
   
$
401
   
$
321
   
$
2,719
   
$
115,020
   
$
117,739
 
Home equity
   
618
     
214
     
124
     
-
     
956
     
34,199
     
35,155
 
Commercial and multifamily
   
377
     
-
     
-
     
-
     
377
     
157,139
     
157,516
 
Construction and land
   
-
     
-
     
-
     
-
     
-
     
44,300
     
44,300
 
Manufactured homes
   
146
     
94
     
-
     
-
     
240
     
13,256
     
13,496
 
Other consumer
   
8
     
-
     
1
     
-
     
9
     
10,275
     
10,284
 
Commercial business
   
109
     
-
     
-
     
-
     
109
     
13,559
     
13,668
 
Total
 
$
2,718
   
$
845
   
$
526
   
$
321
   
$
4,410
   
$
387,748
   
$
392,158
 


Nonperforming Loans.  Loans are considered nonperforming when they are placed on nonaccrual and/or when they are considered to be nonperforming troubled debt restructurings ("TDRs") and/or when they are 90 days or greater past due and still accruing.  A TDR is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind.  Nonperforming TDRs include TDRs that do not have sufficient payment history (typically greater than six months) to be considered performing or TDRs that have become 31 or more days past due.

The following table represents the credit risk profile based on payment activity as of June 30, 2014 by type of loan (in thousands):

 
 
One- to
four- family
   
Home
equity
   
Commercial
and multifamily
   
Construction
and land
   
Manufactured
 homes
   
Other
consumer
   
Commercial
business
   
Total
 
Performing
 
$
120,756
   
$
34,821
   
$
153,253
   
$
47,172
   
$
12,986
   
$
11,760
   
$
22,346
   
$
403,094
 
Nonperforming
   
934
     
401
     
764
     
-
     
39
     
4
     
-
     
2,142
 
Total
 
$
121,690
   
$
35,222
   
$
154,017
   
$
47,172
   
$
13,025
   
$
11,764
   
$
22,346
   
$
405,236
 


The following table represents the credit risk profile based on payment activity as of December 31, 2013 by type of loan (in thousands):

 
 
One- to
four- family
   
Home
equity
   
Commercial
and multifamily
   
Construction
and land
   
Manufactured
 homes
   
Other
consumer
   
Commercial
business
   
Total
 
Performing
 
$
116,967
   
$
34,933
   
$
156,696
   
$
44,300
   
$
13,390
   
$
10,283
   
$
13,668
   
$
390,237
 
Nonperforming
   
772
     
222
     
820
     
-
     
106
     
1
     
-
     
1,921
 
Total
 
$
117,739
   
$
35,155
   
$
157,516
   
$
44,300
   
$
13,496
   
$
10,284
   
$
13,668
   
$
392,158
 



SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


Impaired Loans.  A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the loan.  In the process of identifying loans as impaired, we take into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future.  Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired.  The significance of payment delays and shortfalls is considered on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance.  Impairment is measured on a loan by loan basis for all loans in the portfolio.  All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses.

The following table presents loans individually evaluated for impairment as of June 30, 2014 by type of loan (in thousands):

 
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
 
With no related allowance recorded:
 
   
   
 
One-to four- family
 
$
2,206
   
$
2,338
   
$
-
 
Home equity
   
803
     
803
     
-
 
Commercial and multifamily
   
2,987
     
3,037
     
-
 
Construction and land
   
122
     
122
     
-
 
Manufactured homes
   
101
     
118
     
-
 
Other consumer
   
14
     
14
     
-
 
Commercial business
   
128
     
128
     
-
 
Total
   
6,361
     
6,560
     
-
 
With an allowance recorded:
                       
One-to four- family
   
2,347
     
2,347
     
280
 
Home equity
   
821
     
917
     
133
 
Commercial and multifamily
   
-
     
-
     
-
 
Construction and land
   
82
     
82
     
26
 
Manufactured homes
   
433
     
434
     
72
 
Other consumer
   
7
     
7
     
1
 
Commercial business
   
-
     
-
     
-
 
Total
   
3,690
     
3,787
     
512
 
Totals:
                       
One-to-four family
   
4,553
     
4,685
     
280
 
Home equity
   
1,624
     
1,720
     
133
 
Commercial and multifamily
   
2,987
     
3,037
     
-
 
Construction and land
   
204
     
204
     
26
 
Manufactured homes
   
534
     
552
     
72
 
Other consumer
   
21
     
21
     
1
 
Commercial business
   
128
     
128
     
-
 
Total
 
$
10,051
   
$
10,347
   
$
512
 


SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)


The following table presents loans individually evaluated for impairment as of December 31, 2013 by type of loan (in thousands):

 
 
Recorded Investment
   
Unpaid Principal Balance
   
Related Allowance
 
With no related allowance recorded:
 
   
   
 
One-to four- family
 
$
533
   
$
723
   
$
-
 
Home equity
   
245
     
294
     
-
 
Commercial and multifamily
   
1,995
     
1,995
     
-
 
Construction and land
   
21
     
21
     
-
 
Manufactured homes
   
98
     
98
     
-
 
Other consumer
   
17
     
17
     
-
 
Commercial business
   
336