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EX-31.2 - SFBC FORM 10-Q EXHIBIT 31.2 09-30-14 - Sound Financial Bancorp, Inc.sfbcexhibit312093014.htm
EX-32 - SFBC FORM 10-Q EXHIBIT 32 09-30-14 - Sound Financial Bancorp, Inc.sfbcexhibit32093014.htm
EX-31.1 - SFBC FORM 10-Q EXHIBIT 31.1 09-30-14 - Sound Financial Bancorp, Inc.sfbcexhibit311093014.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 September 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 November 13, 2014, there were 2,518,033 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 September 30, 2014 and December 31, 2013 (unaudited)
 
3
Condensed Consolidated Statements of Income for the Three and Nine Month Periods Ended September 30, 2014 and 2013 (unaudited)
 
4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2014 and 2013 (unaudited)
 
5
Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2014 and 2013 (unaudited)
 
6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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
 
28
Item 3.               Quantitative and Qualitative Disclosures About Market Risk
 
38
Item 4.               Controls and Procedures
 
38
PART II
 
OTHER INFORMATION
 
 
Item 1.
 
Legal Proceedings
 
39
Item 1A
 
Risk Factors
 
39
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
39
Item 3.
 
Defaults Upon Senior Securities
 
39
Item 4.
 
Mine Safety Disclosures
 
39
Item 5.
 
Other Information
 
39
Item 6.
 
Exhibits
 
40
SIGNATURES
 
 
EXHIBITS
 

2

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


 
 
September 30, 2014
   
December 31, 2013
 
ASSETS
 
   
 
Cash and cash equivalents
 
$
22,139
   
$
15,334
 
Available-for-sale securities, at fair value
   
12,944
     
15,421
 
Loans held for sale
   
2,490
     
130
 
Loans
   
417,351
     
390,926
 
Allowance for loan losses
   
(4,230
)
   
(4,177
)
Total loans, net
   
413,121
     
386,749
 
Accrued interest receivable
   
1,446
     
1,366
 
Bank-owned life insurance ("BOLI"), net
   
11,321
     
11,068
 
Other real estate owned ("OREO") and repossessed assets, net
   
259
     
1,178
 
Mortgage servicing rights, at fair value
   
3,115
     
2,984
 
Federal Home Loan Bank ("FHLB") stock, at cost
   
2,247
     
2,314
 
Premises and equipment, net
   
5,621
     
2,138
 
Other assets
   
4,002
     
3,929
 
Total assets
   
478,705
     
442,611
 
LIABILITIES
               
Deposits
               
Interest-bearing
   
358,955
     
313,745
 
Noninterest-bearing demand
   
44,219
     
34,594
 
Total deposits
   
403,174
     
348,339
 
Borrowings
   
20,738
     
43,221
 
Accrued interest payable
   
72
     
82
 
Other liabilities
   
4,534
     
4,103
 
Advance payments from borrowers for taxes and insurance
   
778
     
362
 
Total liabilities
   
429,296
     
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, 2,516,395  and 2,510,810 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
   
25
     
25
 
Additional paid-in capital
   
23,218
     
23,829
 
Unearned shares - Employee Stock Ownership Plan ("ESOP")
   
(1,369
)
   
(1,369
)
Retained earnings
   
27,348
     
24,288
 
Accumulated other comprehensive income (loss), net of tax
   
187
     
(269
)
Total stockholders' equity
   
49,409
     
46,504
 
Total liabilities and stockholders' equity
 
$
478,705
   
$
442,611
 

See notes to condensed consolidated financial statements
3

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


 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
INTEREST INCOME
 
   
   
   
 
Loans, including fees
 
$
5,339
   
$
4,926
   
$
15,687
   
$
14,268
 
Interest and dividends on investments, cash and cash equivalents
   
56
     
59
     
151
     
239
 
Total interest income
   
5,395
     
4,985
     
15,838
     
14,507
 
INTEREST EXPENSE
                               
Deposits
   
580
     
528
     
1,692
     
1,527
 
Borrowings
   
32
     
50
     
126
     
164
 
Total interest expense
   
612
     
578
     
1,818
     
1,691
 
Net interest income
   
4,783
     
4,407
     
14,020
     
12,816
 
PROVISION FOR LOAN LOSSES
   
200
     
450
     
600
     
1,150
 
Net interest income after provision for loan losses
   
4,583
     
3,957
     
13,420
     
11,666
 
NONINTEREST INCOME
                               
Service charges and fee income
   
805
     
564
     
2,040
     
1,714
 
Earnings on cash surrender value of bank-owned life insurance
   
87
     
78
     
253
     
230
 
Mortgage servicing income
   
202
     
76
     
235
     
387
 
Fair value adjustment on mortgage servicing rights
   
153
     
271
     
437
     
656
 
Other-than-temporary impairment losses on securities
   
-
     
-
     
-
     
(30
)
Net gain on sale of loans
   
184
     
37
     
371
     
794
 
Total noninterest income
   
1,431
     
1,026
     
3,336
     
3,751
 
NONINTEREST EXPENSE
                               
Salaries and benefits
   
1,998
     
1,858
     
6,023
     
5,224
 
Operations
   
1,155
     
825
     
3,056
     
2,809
 
Regulatory assessments
   
66
     
57
     
201
     
239
 
Occupancy
   
381
     
353
     
994
     
961
 
Data processing
   
606
     
348
     
1,278
     
954
 
Net (gain) loss on OREO and repossessed assets
   
(12
)
   
125
     
149
     
963
 
Total noninterest expense
   
4,194
     
3,566
     
11,701
     
11,150
 
Income before provision for income taxes
   
1,820
     
1,417
     
5,055
     
4,267
 
Provision for income taxes
   
585
     
423
     
1,617
     
1,333
 
Net income
 
$
1,235
   
$
994
   
$
3,438
   
$
2,934
 
 
                               
Earnings per common share:
                               
Basic
 
$
0.49
   
$
0.39
   
$
1.37
   
$
1.14
 
Diluted
 
$
0.47
   
$
0.38
   
$
1.32
   
$
1.11
 
Weighted average number of common shares outstanding:
                               
Basic
   
2,516
     
2,577
     
2,511
     
2,584
 
Diluted
   
2,609
     
2,634
     
2,605
     
2,636
 

See notes to condensed consolidated financial statements

4


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


 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Net income
 
$
1,235
   
$
994
   
$
3,438
   
$
2,934
 
Available for sale securities:
                               
Unrealized gains arising during the period, net of taxes of $33, $33, $234 and $98, respectively
   
64
     
65
     
456
     
191
 
Reclassification adjustments for other-than-temporary impairment, net of taxes of $0, $0, $0 and $10, respectively
   
-
     
-
     
-
     
20
 
Other comprehensive income, net of tax
   
64
     
65
     
456
     
211
 
Comprehensive income
 
$
1,299
   
$
1,059
   
$
3,894
   
$
3,145
 

See notes to condensed consolidated financial statements
5

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 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
                                   
2,934
             
2,934
 
Other comprehensive income, net of tax
                                           
211
     
211
 
Share-based compensation
                   
126
                             
126
 
Restricted stock forfeited and retired
   
(734
)
                                               
Cash dividends on common stock ($0.05 per share)
                                   
(260
)
           
(260
)
Common stock repurchased
   
(36,000
)
           
(545
)
                           
(545
)
Balances at September 30, 2013
   
2,550,810
   
$
26
   
$
24,370
   
$
(1,598
)
 
$
23,410
   
$
(285
)
 
$
45,923
 

 
 
Shares
   
Common
Stock
   
Additional
Paid-in Capital
   
Unearned
ESOP Shares
   
Retained
Earnings
   
Accumulated
 Other Comprehensive Gain (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
                                   
3,438
             
3,438
 
Other comprehensive income, net of tax
                                           
456
     
456
 
Share-based compensation
                   
289
                             
289
 
Cash dividends on common stock ($0.05 per share)
                                   
(378
)
           
(378
)
Restricted stock awards issued
   
45,565
                                                 
Common stock repurchased
   
(53,340
)
           
(904
)
                           
(904
)
Exercise of stock options
   
13,360
             
4
                             
4
 
Balances at September 30, 2014
   
2,516,395
   
$
25
   
$
23,218
   
$
(1,369
)
 
$
27,348
   
$
187
   
$
49,409
 

See notes to condensed consolidated financial statements
6

 SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Nine Months Ended September 30,
 
 
 
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
 
Net income
 
$
3,438
   
$
2,934
 
Adjustments to reconcile net income to net cash from operating activities:
               
Accretion of net premium on investments
   
329
     
402
 
Other-than-temporary impairment losses on securities
   
-
     
30
 
Provision for loan losses
   
600
     
1,150
 
Depreciation and amortization
   
407
     
340
 
Compensation expense related to stock options and restricted stock
   
289
     
126
 
Fair value adjustment on mortgage servicing rights
   
(437
)
   
(656
)
Additions to mortgage servicing rights
   
(341
)
   
(655
)
Amortization of mortgage servicing rights
   
647
     
774
 
Increase in cash surrender value of BOLI
   
(253
)
   
(230
)
Gain on sale of loans
   
(371
)
   
(794
)
Proceeds from sale of loans
   
33,897
     
63,822
 
Originations of loans held for sale
   
(35,886
)
   
(62,967
)
Loss on sale and write-downs of OREO and repossessed assets
   
16
     
855
 
Change in operating assets and liabilities:
               
Accrued interest receivable
   
(80
)
   
(33
)
Other assets
   
(170
)
   
(76
)
Accrued interest payable
   
(10
)
   
(7
)
Other liabilities
   
431
     
218
 
Net cash from operating activities
   
2,506
     
5,233
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from principal payments, maturities and sales of available for sale securities
   
2,838
     
8,060
 
FHLB stock redeemed
   
67
     
65
 
Purchase of available-for-sale securities
   
-
     
(1,910
)
Net increase in loans
   
(26,329
)
   
(56,100
)
Improvements to OREO and other repossessed assets
   
(11
)
   
(33
)
Proceeds from sale of OREO and other repossessed assets
   
1,367
     
2,475
 
Purchases of premises and equipment, net
   
(218
)
   
(258
)
Purchases of BOLI
   
-
     
(3,500
)
Net cash used by investing activities
   
(22,286
)
   
(51,201
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in deposits
   
33,232
     
29,259
 
Net cash received from acquisition
   
16,698
     
-
 
Proceeds from borrowings
   
135,500
     
205,500
 
Repayment of borrowings
   
(157,983
)
   
(186,983
)
Dividends paid on common stock
   
(378
)
   
(260
)
Net change in advances from borrowers for taxes and insurance
   
416
     
231
 
Proceeds from stock option exercises
   
4
     
-
 
Repurchase of common stock
   
(904
)
   
(545
)
Net cash from financing activities
   
26,585
     
47,202
 
Net decrease in cash and cash equivalents
   
6,805
     
1,234
 
Cash and cash equivalents, beginning of period
   
15,334
     
12,727
 
Cash and cash equivalents, end of period
 
$
22,139
   
$
13,961
 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
1,275
   
$
1,340
 
Interest paid on deposits and borrowings
 
$
1,828
   
$
1,698
 
Noncash net transfer from loans to OREO and repossessed assets
 
$
453
   
$
1,775
 
The following summarizes the non-cash activities related to the acquisition:
               
Fair value of assets acquired
 
$
4,904
   
$
-
 
Fair value of liabilities assumed
 
$
(21,602
)
 
$
-
 
Net fair value of liabilities
 
$
(16,698
)
 
$
-
 
See notes to condensed consolidated financial statements
7

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 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.

In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity, which will allow an alternative fair value measurement approach for consolidated collateralized financing entities (CFEs) to eliminate a practice issue that results in measuring the fair value of a CFE's financial assets at a different amount from the fair value of its financial liabilities even when the financial liabilities have recourse to only the financial assets.  The approach would permit the parent company of a consolidated CFE to measure the CFE's financial assets and financial liabilities based on the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The effective date will be for fiscal years, and interim periods within those years, beginning after December 15, 2015 for public organizations. An entity can elect either a retrospective or a modified retrospective transition method, and early adoption is permitted as of the beginning of an annual period.  The adoption of ASU 2014-13 is not expected to have a material impact on the Company's consolidated financial statements.
 
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.  ASU 2014-15 defines management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures.  Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.  Currently, GAAP lacks guidance about management's responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern or to provide related footnote disclosures.  The ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively.  The adoption of this ASU will not have a material impact on the Company's consolidated financial statements.
8


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

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
 
September 30, 2014
 
   
   
   
 
Municipal bonds
 
$
1,911
   
$
163
   
$
-
   
$
2,074
 
Agency mortgage-backed securities
   
8,302
     
109
     
(46
)
   
8,365
 
Non-agency mortgage-backed securities
   
2,448
     
115
     
(58
)
   
2,505
 
Total
 
$
12,661
   
$
387
   
$
(104
)
 
$
12,944
 
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 September 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 September 30, 2014
 
 
 
Amortized Cost
   
Fair Value
 
Due in five to ten years
 
$
1,911
   
$
2,074
 
Due after ten years
   
10,750
     
10,870
 
Total
 
$
12,661
   
$
12,944
 

9


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


No securities were pledged to secure Washington State Public Funds as of September 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 nine months ended September 30, 2014 and 2013.

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):

 
 
September 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
 
$
626
   
$
(5
)
 
$
2,605
   
$
(41
)
 
$
3,231
   
$
(46
)
Non-agency mortgage-backed securities
   
-
     
-
     
536
     
(58
)
   
536
     
(58
)
Total
 
$
626
   
$
(5
)
 
$
3,141
   
$
(99
)
 
$
3,767
   
$
(104
)

 
 
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 nine months ended September 30, 2014 and 2013 relating to the Company's non- agency mortgage backed securities (in thousands):

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


At September 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 $12.9 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 September 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 September 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").
10


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


As of September 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 nine months ended September 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 September 30, 2014
   
At December 31, 2013
 
Real estate loans:
 
   
 
One- to four- family
 
$
129,442
   
$
117,739
 
Home equity
   
34,782
     
35,155
 
Commercial and multifamily
   
159,619
     
157,516
 
Construction and land
   
45,186
     
44,300
 
Total real estate loans
   
369,029
     
354,710
 
Consumer loans:
               
Manufactured homes
   
12,651
     
13,496
 
Other consumer
   
13,000
     
10,284
 
Total consumer loans
   
25,584
     
23,780
 
Commercial business loans
   
23,995
     
13,668
 
Total loans
   
418,675
     
392,158
 
Deferred fees
   
(1,324
)
   
(1,232
)
Total loans, gross
   
417,351
     
390,926
 
Allowance for loan losses
   
(4,230
)
   
(4,177
)
Total loans, net
 
$
413,121
   
$
386,749
 

11

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 September 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
 
$
289
   
$
32
   
$
5
   
$
13
   
$
51
   
$
-
   
$
-
   
$
-
   
$
390
 
Collectively evaluated for impairment
   
622
     
335
     
1,813
     
226
     
63
     
101
     
238
     
442
     
3,840
 
Ending balance
 
$
911
   
$
367
   
$
1,818
   
$
239
   
$
114
   
$
101
   
$
238
   
$
442
   
$
4,230
 
Loans receivable:
                                                                       
Individually evaluated for impairment
 
$
4,564
   
$
1,465
   
$
2,975
   
$
202
   
$
441
   
$
28
   
$
126
   
$
-
   
$
9,801
 
Collectively evaluated for impairment
   
124,878
     
33,317
     
156,644
     
44,984
     
12,210
     
12,972
     
23,869
     
-
     
408,874
 
Ending balance
 
$
129,442
   
$
34,782
   
$
159,619
   
$
45,186
   
$
12,651
   
$
13,000
   
$
23,995
   
$
-
   
$
418,675
 


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
 

12

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 September 30, 2014 (in thousands):
 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
872
   
$
(51
)
 
$
64
   
$
26
   
$
911
 
Home equity
   
446
     
(187
)
   
15
     
93
     
367
 
Commercial and multifamily
   
1,790
     
-
     
1
     
27
     
1,818
 
Construction and land
   
260
     
-
     
-
     
(21
)
   
239
 
Manufactured homes
   
137
     
(12
)
   
4
     
(15
)
   
114
 
Other consumer
   
87
     
(5
)
   
10
     
9
     
101
 
Commercial business
   
137
     
-
     
-
     
101
     
238
 
Unallocated
   
462
     
-
     
-
     
(20
)
   
442
 
Total
 
$
4,191
   
$
(255
)
 
$
94
   
$
200
   
$
4,230
 


The following table summarizes the activity in loan losses for the nine months ended September 30, 2014 (in thousands):
 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,915
   
$
(116
)
 
$
65
   
$
(953
)
 
$
911
 
Home equity
   
781
     
(295
)
   
48
     
(167
)
   
367
 
Commercial and multifamily
   
300
     
(46
)
   
2
     
1,562
     
1,818
 
Construction and land
   
318
     
-
     
-
     
(79
)
   
239
 
Manufactured homes
   
209
     
(189
)
   
9
     
85
     
114
 
Other consumer
   
109
     
(42
)
   
17
     
17
     
101
 
Commercial business
   
102
     
-
     
-
     
136
     
238
 
Unallocated
   
443
     
-
     
-
     
(1
)
   
442
 
Total
 
$
4,177
   
$
(688
)
 
$
141
   
$
600
   
$
4,230
 


The following table summarizes the activity in loan losses for the three months ended September 30, 2013 (in thousands):
 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,548
   
$
(98
)
 
$
-
   
$
379
   
$
1,829
 
Home equity
   
890
     
(314
)
   
7
     
350
     
933
 
Commercial and multifamily
   
583
     
-
     
-
     
(75
)
   
508
 
Construction and land
   
447
     
-
     
-
     
(146
)
   
301
 
Manufactured homes
   
267
     
(61
)
   
1
     
37
     
244
 
Other consumer
   
154
     
(11
)
   
12
     
(22
)
   
133
 
Commercial business
   
97
     
-
     
-
     
(35
)
   
62
 
Unallocated
   
143
     
-
     
-
     
(38
)
   
105
 
Total
 
$
4,129
   
$
(484
)
 
$
20
   
$
450
   
$
4,115
 


The following table summarizes the activity in loan losses for the nine months ended September 30, 2013 (in thousands):
 
 
Beginning Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending Allowance
 
One-to four- family
 
$
1,417
   
$
(424
)
 
$
-
   
$
836
   
$
1,829
 
Home equity
   
997
     
(535
)
   
13
     
458
     
933
 
Commercial and multifamily
   
492
     
(192
)
   
34
     
174
     
508
 
Construction and land
   
217
     
(7
)
   
-
     
91
     
301
 
Manufactured homes
   
260
     
(115
)
   
1
     
98
     
244
 
Other consumer
   
146
     
(38
)
   
26
     
(1
)
   
133
 
Commercial business
   
218
     
(46
)
   
-
     
(110
)
   
62
 
Unallocated
   
501
     
-
     
-
     
(396
)
   
105
 
Total
 
$
4,248
   
$
(1,357
)
 
$
74
   
$
1,150
   
$
4,115
 

13


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 September 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
 
$
116,414
   
$
30,887
   
$
154,211
   
$
44,422
   
$
11,429
   
$
12,715
   
$
23,371
   
$
393,449
 
Watch
   
10,993
     
3,200
     
3,180
     
662
     
1,170
     
261
     
624
     
20,090
 
Special Mention
   
197
     
13
     
-
     
-
     
-
     
-
     
-
     
210
 
Substandard
   
1,838
     
682
     
2,228
     
102
     
52
     
24
     
-
     
4,926
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
   Total
 
$
129,442
   
$
34,782
   
$
159,619
   
$
45,186
   
$
12,651
   
$
13,000
   
$
23,995
   
$
418,675
 


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 September 30, 2014 and December 31, 2013, by type of loan (in thousands):
 
 
September 30, 2014
   
December 31, 2013
 
One- to four- family
 
$
716
   
$
401
 
Home equity
   
181
     
124
 
Manufactured homes
   
7
     
32
 
Other consumer
   
-
     
1
 
Total
 
$
904
   
$
558
 

14


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 September 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
 
$
-
   
$
188
   
$
716
   
$
-
   
$
904
   
$
128,538
   
$
129,442
 
Home equity
   
386
     
157
     
124
     
-
     
667
     
34,115
     
34,782
 
Commercial and multifamily
   
-
     
-
     
-
     
-
     
-
     
159,619
     
159,619
 
Construction and land
   
-
     
-
     
-
     
-
     
-
     
45,186
     
45,186
 
Manufactured homes
   
69
     
-
     
7
     
-
     
76
     
12,575
     
12,651
 
Other consumer
   
40
     
16
     
-
     
-
     
56
     
12,944
     
13,000
 
Commercial business
   
-
     
-
     
-
     
-
     
-
     
23,995
     
23,995
 
Total
 
$
495
   
$
361
   
$
847
   
$
-
   
$
1,703
   
$
416,972
   
$
418,675
 


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 interest.  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 September 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
 
$
128,614
   
$
34,502
   
$
157,391
   
$
45,186
   
$
12,437
   
$
12,997
   
$
23,995
   
$
415,122
 
Nonperforming
   
828
     
280
     
2,228
     
-
     
214
     
3
     
-
     
3,553
 
Total
 
$
129,442
   
$
34,782
   
$
159,619
   
$
45,186
   
$
12,651
   
$
13,000
   
$
23,995
   
$
418,675
 


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
 

15


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 September 30, 2014 by type of loan (in thousands):
 
 
Recorded
Investment
   
Unpaid
Principal Balance
   
Related
Allowance
 
With no related allowance recorded:
 
   
   
 
One-to four- family
 
$
2,346
   
$
2,589
   
$
-
 
Home equity
   
708
     
769
     
-
 
Commercial and multifamily
   
1,502
     
1,553
     
-
 
Construction and land
   
121
     
121
     
-
 
Manufactured homes
   
84
     
91
     
-
 
Other consumer
   
24
     
24
     
-
 
Commercial business
   
126
     
126
     
-
 
Total
   
4,911
     
5,273
     
-
 
With an allowance recorded:
                       
One-to four- family
   
2,218
     
2,218
   
$
289
 
Home equity
   
757
     
853
     
32
 
Commercial and multifamily
   
1,473
     
1,473
     
5
 
Construction and land
   
81
     
81
     
13
 
Manufactured homes
   
357
     
357
     
51
 
Other consumer
   
4
     
4
     
-
 
Commercial business
   
-
     
-
     
-
 
Total
   
4,890
     
4,986
   
$
390
 
Totals:
                       
One-to-four family
   
4,564
     
4,807
   
$
289
 
Home equity
   
1,465
     
1,622
     
32
 
Commercial and multifamily
   
2,975
     
3,026
     
5
 
Construction and land
   
202
     
202
     
13
 
Manufactured homes
   
441
     
448
     
51
 
Other consumer
   
28
     
28
     
-
 
Commercial business
   
126
     
126
     
-
 
Total
 
$
9,801
   
$
10,259
   
$
390
 

16

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