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EXCEL - IDEA: XBRL DOCUMENT - Sound Financial Bancorp, Inc.Financial_Report.xls
EX-31.2 - SFBC FORM 10-Q 03-31-15 EXHIBIT 31.2 - Sound Financial Bancorp, Inc.sfbcform10q033115exhibit312.htm
EX-32 - SFBC FORM 10-Q 03-31-15 EXHIBIT 32 - Sound Financial Bancorp, Inc.sfbcform10q033115exhibit32.htm
EX-31.1 - SFBC FORM 10-Q 03-31-15 EXHIBIT 31.1 - Sound Financial Bancorp, Inc.sfbcform10q033115exhibit311.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 March 31, 2015
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 May 14, 2015, there were 2,525,951 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 March 31, 2015 and December 31, 2014 (unaudited)
 
3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)
 
4
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014 (unaudited)
 
5
Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2015 and 2014 (unaudited)
 
6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (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
 
35
Item 4.    Controls and Procedures
 
36
PART II
 
OTHER INFORMATION
 
 
Item 1.
 
Legal Proceedings
 
36
Item 1A
 
Risk Factors
 
36
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
36
Item 3.
 
Defaults Upon Senior Securities
 
36
Item 4.
 
Mine Safety Disclosures
 
36
Item 5.
 
Other Information
 
36
Item 6.
 
Exhibits
 
37
SIGNATURES
 
 
EXHIBITS
 

2


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


 
 
March 31 ,
2015
   
December 31,
2014
 
ASSETS
 
   
 
Cash and cash equivalents
 
$
35,223
   
$
29,289
 
Available-for-sale securities, at fair value
   
8,717
     
11,524
 
Loans held for sale
   
1,426
     
810
 
Loans
   
423,100
     
430,360
 
Allowance for loan losses
   
(4,436
)
   
(4,387
)
Total loans, net
   
418,664
     
425,973
 
Accrued interest receivable
   
1,448
     
1,497
 
Bank-owned life insurance ("BOLI"), net
   
11,492
     
11,408
 
Other real estate owned ("OREO") and repossessed assets, net
   
499
     
323
 
Mortgage servicing rights, at fair value
   
2,890
     
3,028
 
Federal Home Loan Bank ("FHLB") stock, at cost
   
2,200
     
2,224
 
Premises and equipment, net
   
5,604
     
5,555
 
Other assets
   
3,545
     
3,556
 
Total assets
 
$
491,708
   
$
495,187
 
LIABILITIES
               
Deposits
               
Interest-bearing
   
368,431
     
363,456
 
Noninterest-bearing demand
   
47,789
     
44,353
 
Total deposits
   
416,220
     
407,809
 
Borrowings
   
18,417
     
30,578
 
Accrued interest payable
   
85
     
76
 
Other liabilities
   
4,271
     
5,606
 
Advance payments from borrowers for taxes and insurance
   
940
     
474
 
Total liabilities
   
439,933
     
444,543
 
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, 2,525,951 and 2,524,645 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
   
25
     
25
 
Additional paid-in capital
   
23,618
     
23,552
 
Unearned shares - Employee Stock Ownership Plan ("ESOP")
   
(1,140
)
   
(1,140
)
Retained earnings
   
29,107
     
28,024
 
Accumulated other comprehensive income, net of tax
   
165
     
183
 
Total stockholders' equity
   
51,775
     
50,644
 
Total liabilities and stockholders' equity
 
$
491,708
   
$
495,187
 

See notes to condensed consolidated financial statements
3

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


 
 
Three Months Ended
March 31,
 
 
 
2015
   
2014
 
INTEREST INCOME
 
   
 
Loans, including fees
 
$
5,322
   
$
5,168
 
Interest and dividends on investments, cash and cash equivalents
   
55
     
34
 
Total interest income
   
5,377
     
5,202
 
INTEREST EXPENSE
               
Deposits
   
661
     
561
 
Borrowings
   
28
     
49
 
Total interest expense
   
689
     
610
 
Net interest income
   
4,688
     
4,592
 
PROVISION FOR LOAN LOSSES
   
100
     
200
 
Net interest income after provision for loan losses
   
4,588
     
4,392
 
NONINTEREST INCOME
               
Service charges and fee income
   
645
     
536
 
Earnings on cash surrender value of bank-owned life insurance
   
84
     
80
 
Mortgage servicing income
   
255
     
(47
)
Fair value adjustment on mortgage servicing rights
   
(178
)
   
140
 
Loss on sale of securities
   
(31
)
   
-
 
Net gain on sale of loans
   
396
     
76
 
Total noninterest income
   
1,171
     
785
 
NONINTEREST EXPENSE
               
Salaries and benefits
   
2,255
     
2,067
 
Operations
   
903
     
892
 
Regulatory assessments
   
66
     
60
 
Occupancy
   
325
     
286
 
Data processing
   
403
     
344
 
Net loss on OREO and repossessed assets
   
72
     
83
 
Total noninterest expense
   
4,024
     
3,732
 
Income before provision for income taxes
   
1,735
     
1,445
 
Provision for income taxes
   
527
     
458
 
Net income
 
$
1,208
   
$
987
 
 
               
Earnings per common share:
               
Basic
 
$
0.48
   
$
0.39
 
Diluted
 
$
0.46
   
$
0.38
 
Weighted average number of common shares outstanding:
               
Basic
   
2,524,873
     
2,506,678
 
Diluted
   
2,602,161
     
2,604,036
 

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 March 31,
 
 
 
2015
   
2014
 
Net income
 
$
1,208
   
$
987
 
Available for sale securities:
               
Unrealized gains arising during the period, net of taxes of $25 and $67, respectively
   
49
     
131
 
Reclassification adjustment for net losses realized in earnings, net of tax benefit of $35 and $0, respectively
   
(67
)
   
-
 
Other comprehensive income, net of tax
   
(18
)
   
131
 
Comprehensive income
 
$
1,190
   
$
1,118
 

See notes to condensed consolidated financial statements
5

SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 2015 and 2014 (unaudited)
(In thousands, except number of shares)

 
 
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
                                   
987
             
987
 
Other comprehensive income, net of tax
                                           
131
     
131
 
Share-based compensation
                   
198
                             
198
 
Cash dividends on common stock ($0.05 per share)
                                   
(126
)
           
(126
)
Restricted stock awards
   
45,565
     
-
                                     
-
 
Common stock repurchased
   
(53,340
)
   
-
     
(904
)
                           
(904
)
Balances at March 31, 2014
   
2,503,035
   
$
25
   
$
23,123
   
$
(1,369
)
 
$
25,149
   
$
(138
)
 
$
46,790
 


 
 
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, 2014
   
2,524,645
   
$
25
   
$
23,552
   
$
(1,140
)
 
$
28,024
   
$
183
   
$
50,644
 
Net income
                                   
1,208
             
1,208
 
Other comprehensive income, net of tax
                                           
(18
)
   
(18
)
Share-based compensation
                   
103
                             
103
 
Cash dividends on common stock
($0.05 per share)
                                   
(125
)
           
(125
)
Restricted stock awards issued
   
10,208
                                             
-
 
Common stock forfeited and retired
   
(7,535
)
                                           
-
 
Common stock repurchased
   
(2,500
)
           
(48
)
                           
(48
)
Exercise of stock options
   
1,133
             
11
                             
11
 
Balances at March 31, 2015
   
2,525,951
   
$
25
   
$
23,618
   
$
(1,140
)
 
$
29,107
   
$
165
   
$
51,775
 

See notes to condensed consolidated financial statements
6

 SOUND FINANCIAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Three Months Ended March 31,
 
 
 
2015
   
2014
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
 
Net income
 
$
1,208
   
$
987
 
Adjustments to reconcile net income to net cash from operating activities:
               
Accretion of net premium on investments
   
42
     
130
 
Loss on sale of securities
   
31
     
-
 
Provision for loan losses
   
100
     
200
 
Depreciation and amortization
   
145
     
123
 
Compensation expense related to stock options and restricted stock
   
103
     
198
 
Fair value adjustment on mortgage servicing rights
   
178
     
(140
)
Additions to mortgage servicing rights
   
(217
)
   
(56
)
Amortization of mortgage servicing rights
   
177
     
232
 
Increase in cash surrender value of BOLI
   
(84
)
   
(80
)
Gain on sale of loans
   
(396
)
   
(76
)
Proceeds from sale of loans
   
21,511
     
5,861
 
Originations of loans held for sale
   
(21,731
)
   
(7,091
)
Loss on sale and write-downs of OREO and repossessed assets
   
38
     
24
 
Change in operating assets and liabilities:
               
Accrued interest receivable
   
49
     
(12
)
Other assets
   
20
     
(64
)
Accrued interest payable
   
9
     
(3
)
Other liabilities
   
(1,335
)
   
2,478
 
Net cash (used by) from operating activities
   
(152
)
   
2,711
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from principal payments, maturities and sales of available for sale securities
   
2,707
     
759
 
FHLB stock redeemed
   
24
     
22
 
Net decrease (increase) in loans
   
6,764
     
(4,274
)
Improvements to OREO and other repossessed assets
   
-
     
(12
)
Proceeds from sale of OREO and other repossessed assets
   
231
     
942
 
Purchases of premises and equipment, net
   
(194
)
   
(51
)
Net cash from (used by) investing activities
   
9,532
     
(2,614
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net increase in deposits
   
8,411
     
15,008
 
Proceeds from borrowings
   
21,000
     
40,500
 
Repayment of borrowings
   
(33,161
)
   
(55,661
)
Dividends paid on common stock
   
(125
)
   
(126
)
Net change in advances from borrowers for taxes and insurance
   
466
     
366
 
Proceeds from stock option exercises
   
11
     
-
 
Repurchase of common stock
   
(48
)
   
(904
)
Net cash used by financing activities
   
(3,446
)
   
(817
)
Net increase (decrease) in cash and cash equivalents
   
5,934
     
(720
)
Cash and cash equivalents, beginning of period
   
29,289
     
15,334
 
Cash and cash equivalents, end of period
 
$
35,223
   
$
14,614
 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Cash paid for income taxes
 
$
625
   
$
375
 
Interest paid on deposits and borrowings
 
$
680
   
$
613
 
Noncash net transfer from loans to OREO and repossessed assets
 
$
445
   
$
129
 

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 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, 2014, as filed with the SEC on March 31, 2015 ("2014 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, 2014, included in the 2014 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 January 2014, the Financial Accounting Standards Board "(FASB") issued Accounting Standards Update ("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 ASU was effective for annual and interim reporting periods beginning on or after December 15, 2014 and is applied prospectively. The adoption of ASU No. 2014-01 did not have a material impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) - 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 ASU requires 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 ASU was 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 did not 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 ASU 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 ASU 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 ASU allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the ASU recognized at the date of initial application. The adoption of ASU No. 2014-09 is not expected to have a material impact on the Company's consolidated financial statements.

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 ASU 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 was effective for the first interim or annual period beginning after December 15, 2014. The adoption of ASU No. 2014-11 did 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)


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 adoption of ASU No. 2014-12 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2014, FASB issued ASU No. 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  The amendments in this ASU affect creditors that hold government-guaranteed mortgage loans, including those guaranteed by the FHA and the VA.      The ASU provides specific guidance on how to classify or measure foreclosed mortgage loans that are government guaranteed.  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure, 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and creditor has the ability to recover under the claim and, 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  ASU No. 2014-14 was effective for fiscal years and interim periods beginning after December 15, 2014.  The adoption of ASU 2014-14 did not have a material impact on the Company's consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-1, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20). The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted. The adoption of ASU 2015-1 is not expected to have a material impact on the Company's consolidated financial statements.

9


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
 
March 31, 2015
 
   
   
   
 
Municipal bonds
 
$
1,912
   
$
175
   
$
-
   
$
2,087
 
Agency mortgage-backed securities
   
6,024
     
136
     
(26
)
   
6,134
 
Non-agency mortgage-backed securities
   
531
     
-
     
(35
)
   
496
 
Total
 
$
8,467
   
$
311
   
$
(61
)
 
$
8,717
 
December 31, 2014
                               
Municipal bonds
 
$
1,911
   
$
172
   
$
-
   
$
2,083
 
Agency mortgage-backed securities
   
7,024
     
110
     
(38
)
   
7,096
 
Non-agency mortgage-backed securities
   
2,312
     
83
     
(50
)
   
2,345
 
Total
 
$
11,247
   
$
365
   
$
(88
)
 
$
11,524
 


The amortized cost and fair value of AFS securities at March 31, 2105, 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 March 31, 2015
 
 
 
Amortized
Cost
   
Fair
Value
 
Due in five to ten years
 
$
1,911
   
$
2,087
 
Due after ten years
   
6,556
     
6,630
 
Total
 
$
8,467
   
$
8,717
 

No securities were pledged to secure Washington State Public Funds as of March 31, 2015 or December 31, 2014.

For the three months ended March 31, 2015, we sold $1.7 million of non-agency mortgage-backed securities generating gross losses of $31,000 and no gross gains.  There were no sales of AFS securities during the three months ended March 31, 2014.

10


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):

 
 
March 31, 2015
 
 
 
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
 
$
-
   
$
-
   
$
1,585
   
$
(26
)
 
$
1,585
   
$
(26
)
Non-agency mortgage-backed securities
   
-
             
496
     
(35
)
   
496
     
(35
)
Total
 
$
-
   
$
-
   
$
2,081
   
$
(61
)
 
$
2,081
   
$
(61
)


 
 
December 31, 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
 
$
627
   
$
(6
)
 
$
2,216
   
$
(32
)
 
$
2,843
   
$
(38
)
Non-agency mortgage-backed securities
   
-
     
-
     
507
     
(50
)
   
507
     
(50
)
Total
 
$
627
   
$
(6
)
 
$
2,723
   
$
(82
)
 
$
3,350
   
$
(88
)


All of the securities with cumulative credit losses were sold during the three months ended March 31, 2015.  The following table presents the cumulative roll forward of credit losses recognized in earnings during the three months ended March 31, 2015 and 2014 relating to the Company's non- agency mortgage backed securities (in thousands):

 
 
Three Months Ended
March 31,
 
 
 
2015
   
2014
 
Estimated credit losses, beginning balance
 
$
450
   
$
450
 
Additions for credit losses not previously recognized
   
-
     
-
 
Reduction for increases in cash flows
   
-
     
-
 
Reduction of related OTTI due to sales
   
(450
)
   
-
 
Reduction for realized losses
   
-
     
-
 
Estimated credit losses, ending balance
 
$
-
   
$
450
 


At March 31, 2015, our securities portfolio consisted of 14 agency mortgage-backed securities, one non-agency mortgage-backed security and five municipal securities with a fair value of $8.7 million.  At December 31, 2014, our securities portfolio consisted of 15 agency mortgage-backed securities, five non-agency mortgage-backed securities and five municipal bonds with a fair value of $11.5 million.  At March 31, 2015 one of the 14 agency mortgage-backed securities was in an unrealized loss position compared to three of the 15 agency mortgage-backed securities at December 31, 2014.  All of the agency mortgage-backed securities in an unrealized loss position at March 31, 2015 and December 31, 2014 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").
11


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


As of March 31, 2015 and December 31, 2014, the same non-agency mortgage-backed security was the only non-agency mortgage-backed security in an unrealized loss position.  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 this investment does not permit the issuer to settle the security at a price less than par.  While management does not intend to sell this non-agency mortgage-backed security, and it is unlikely that the Company will be required to sell this security 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 OTTI was recognized during the three months ended March 31, 2015.  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
March 31, 2015
   
At
December 31, 2014
 
Real estate loans:
 
   
 
One- to four- family
 
$
129,924
   
$
133,031
 
Home equity
   
33,981
     
34,675
 
Commercial and multifamily
   
170,470
     
168,952
 
Construction and land
   
44,486
     
46,279
 
Total real estate loans
   
378,861
     
382,937
 
Consumer loans:
               
Manufactured homes
   
12,704
     
12,539
 
Other consumer
   
14,604
     
16,875
 
Total consumer loans
   
27,308
     
29,414
 
Commercial business loans
   
18,397
     
19,525
 
Total loans
   
424,566
     
431,876
 
Deferred fees
   
(1,466
)
   
(1,516
)
Total loans, gross
   
423,100
     
430,360
 
Allowance for loan losses
   
(4,436
)
   
(4,387
)
Total loans, net
 
$
418,664
   
$
425,973
 

12

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 March 31, 2015 (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
 
$
322
   
$
24
   
$
160
   
$
37
   
$
47
   
$
-
   
$
-
   
$
-
   
$
590
 
Collectively evaluated for impairment
   
1,107
     
490
     
1,246
     
377
     
137
     
154
     
104
     
231
     
3,846
 
Ending balance
 
$
1,429
   
$
514
   
$
1,406
   
$
414
   
$
184
   
$
154
   
$
104
   
$
231
   
$
4,436
 
Loans receivable:
                                                                       
Individually evaluated for impairment
 
$
4,123
   
$
1,200
   
$
2,733
   
$
179
   
$
403
   
$
16
   
$
121
   
$
-
   
$
8,775
 
Collectively evaluated for impairment
   
125,801
     
32,781
     
167,737
     
44,307
     
12,301
     
14,588
     
18,276
     
-
     
415,791
 
Ending balance
 
$
129,924
   
$
33,981
   
$
170,470
   
$
44,486
   
$
12,704
   
$
14,604
   
$
18,397
   
$
-
   
$
424,566
 


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, 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
 
$
258
   
$
28
   
$
8
   
$
14
   
$
41
   
$
18
   
$
-
   
$
-
   
$
367
 
Collectively evaluated for impairment
   
1,184
     
573
     
1,236
     
385
     
152
     
149
     
108
     
233
     
4,020
 
Ending balance
 
$
1,442
   
$
601
   
$
1,244
   
$
399
   
$
193
   
$
167
   
$
108
   
$
233
   
$
4,387
 
Loans  receivable:
                                                                       
Individually evaluated for impairment
 
$
4,186
   
$
1,247
   
$
2,956
   
$
180
   
$
404
   
$
51
   
$
124
   
$
-
   
$
9,148
 
Collectively evaluated for impairment
   
128,845
     
33,428
     
165,996
     
46,099
     
12,135
     
16,824
     
19,401
     
-
     
422,728
 
Ending balance
 
$
133,031
   
$
34,675
   
$
168,952
   
$
46,279
   
$
12,539
   
$
16,875
   
$
19,525
   
$
-
   
$
431,876
 

13

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 March 31, 2015 (in thousands):

 
 
Beginning
 Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
 Allowance
 
One-to four- family
 
$
1,442
   
$
(21
)
 
$
-
   
$
8
   
$
1,429
 
Home equity
   
601
     
(19
)
   
4
     
(72
)
   
514
 
Commercial and multifamily
   
1,244
     
-
     
-
     
162
     
1,406
 
Construction and land
   
399
     
-
     
-
     
15
     
414
 
Manufactured homes
   
193
     
-
     
3
     
(12
)
   
184
 
Other consumer
   
167
     
(24
)
   
6
     
5
     
154
 
Commercial business
   
108
     
-
     
-
     
(4
)
   
104
 
Unallocated
   
233
     
-
     
-
     
(2
)
   
231
 
Total
 
$
4,387
   
$
(64
)
 
$
13
   
$
100
   
$
4,436
 


The following table summarizes the activity in loan losses for the three months ended March 31, 2014 (in thousands):

 
 
Beginning
 Allowance
   
Charge-offs
   
Recoveries
   
Provision
   
Ending
 Allowance
 
One-to four- family
 
$
1,915
   
$
(65
)
 
$
1
   
$
(926
)
 
$
925
 
Home equity
   
781
     
(34
)
   
29
     
(247
)
   
529
 
Commercial and multifamily
   
300
     
(38
)
   
1
     
1,569
     
1,832
 
Construction and land
   
318
     
-
     
-
     
(78
)
   
240
 
Manufactured homes
   
209
     
(88
)
   
1
     
64
     
186
 
Other consumer
   
109
     
(11
)
   
3
     
(1
)
   
100
 
Commercial business
   
102
     
-
     
-
     
(3
)
   
99
 
Unallocated
   
443
     
-
     
-
     
(178
)
   
265
 
Total
 
$
4,177
   
$
(236
)
 
$
35
   
$
200
   
$
4,176
 

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 our banking regulator, which can order the establishment of additional loss allowances.  Pass rated loans are loans that are not otherwise classified or criticized.

14


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


The following table represents the internally assigned grades as of March 31, 2015 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
 
$
117,233
   
$
30,275
   
$
164,482
   
$
43,586
   
$
11,498
   
$
14,370
   
$
17,787
   
$
399,231
 
Watch
   
11,801
     
3,285
     
4,367
     
819
     
1,124
     
220
     
610
     
22,226
 
Special Mention
   
-
     
-
     
-
     
-
     
35
     
-
     
-
     
35
 
Substandard
   
890
     
421
     
1,621
     
81
     
47
     
14
     
-
     
3,074
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
   Total
 
$
129,924
   
$
33,981
   
$
170,470
   
$
44,486
   
$
12,704
   
$
14,604
   
$
18,397
   
$
424,566
 


The following table represents the internally assigned grades as of December 31, 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
 
$
120,152
   
$
30,785
   
$
163,573
   
$
45,427
   
$
11,427
   
$
16,587
   
$
18,919
   
$
406,870
 
Watch
   
11,793
     
3,322
     
3,740
     
852
     
1,038
     
240
     
606
     
21,591
 
Special Mention
   
-
     
-
     
-
     
-
     
24
     
-
     
-
     
24
 
Substandard
   
1,086
     
568
     
1,639
     
-
     
50
     
48
     
-
     
3,391
 
Doubtful
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
   Total
 
$
133,031
   
$
34,675
   
$
168,952
   
$
46,279
   
$
12,539
   
$
16,875
   
$
19,525
   
$
431,876
 


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 March 31, 2015 and December 31, 2014, by type of loan (in thousands):

 
 
March 31, 2015
   
December 31, 2014
 
One- to four- family
 
$
812
   
$
1,092
 
Home equity
   
324
     
258
 
Construction and land
   
81
     
81
 
Manufactured homes
   
5
     
6
 
Other consumer
   
-
     
27
 
Total
 
$
1,222
   
$
1,464
 

15


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 March 31, 2015 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
 
$
1,006
   
$
165
   
$
105
   
$
-
   
$
1,276
   
$
128,648
   
$
129,924
 
Home equity
   
446
     
157
     
212
     
-
     
815
     
33,166
     
33,981
 
Commercial and multifamily
   
-
     
-
     
-
     
-
     
-
     
170,470
     
170,470
 
Construction and land
   
66
     
-
     
81
     
-
     
147
     
44,339
     
44,486
 
Manufactured homes
   
237
     
5
     
-
     
-
     
242
     
12,462
     
12,704
 
Other consumer
   
124
     
3
     
-
     
-
     
127
     
14,477
     
14,604
 
Commercial business
   
-
     
-
     
-
     
-
     
-
     
18,397
     
18,397
 
Total
 
$
1,879
   
$
330
   
$
398
   
$
-
   
$
2,607
   
$
421,959
   
$
424,566
 


The following table represents the aging of the recorded investment in past due loans as of December 31, 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
 
$
1,300
   
$
167
   
$
720
   
$
-
   
$
2,187
   
$
130,844
   
$
133,031
 
Home equity
   
585
     
109
     
203
     
-
     
897
     
33,778
     
34,675
 
Commercial and multifamily
   
-
     
-
     
-
     
-
     
-
     
168,952
     
168,952
 
Construction and land
   
-
     
-
     
81
     
-
     
81
     
46,198
     
46,279
 
Manufactured homes
   
197
     
42
     
27
     
114
     
380
     
12,159
     
12,539
 
Other consumer
   
23
     
7
     
-
     
-
     
30
     
16,845
     
16,875
 
Commercial business
   
430
     
-
     
-
     
-
     
430
     
19,095
     
19,525
 
Total
 
$
2,535
   
$
325
   
$
1,031
   
$
114
   
$
4,005
   
$
427,871
   
$
431,876
 


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 of our loan portfolio based on payment activity as of March 31, 2015 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
 
$
128,861
   
$
33,618
   
$
168,849
   
$
44,405
   
$
12,625
   
$
14,602
   
$
18,397
   
$
421,357
 
Nonperforming
   
1,063
     
363
     
1,621
     
81
     
79
     
2
     
-
     
3,209
 
Total
 
$
129,924
   
$
33,981
   
$
170,470
   
$
44,486
   
$
12,704
   
$
14,604
   
$
18,397
   
$
424,566
 


The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 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
 
$
131,519
   
$
34,289
   
$
167,313
   
$
46,198
   
$
12,344
   
$
16,846
   
$
19,525
   
$
428,034
 
Nonperforming
   
1,512
     
386
     
1,639
     
81
     
195
     
29
     
-
     
3,842
 
Total
 
$
133,031
   
$
34,675
   
$
168,952
   
$
46,279
   
$
12,539
   
$
16,875
   
$
19,525
   
$
431,876
 

16


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 March 31, 2015 by type of loan (in thousands):

 
 
Recorded
Investment
   
Unpaid
Principal Balance
   
Related
Allowance
   
Average Recorded Investment
   
Interest Income
Recognized
 
With no related allowance recorded:
 
   
   
   
   
 
One- to four- family
 
$
1,715
   
$
2,114
   
$
-
   
$
1,906
   
$
23
 
Home equity
   
551
     
585
     
-
     
523
     
5
 
Commercial and multifamily
   
1,283
     
1,379
     
-
     
1,388
     
18
 
Construction and land
   
18
     
18
     
-
     
59
     
-
 
Manufactured homes
   
93
     
112
     
-
     
90
     
2
 
Other consumer
   
14
     
14
     
-
     
18
     
-
 
Commercial business
   
121
     
121
     
-
     
123
     
2
 
Total
   
3,795
     
4,343
     
-
     
4,107
     
50
 
With an allowance recorded:
                                       
One- to four- family
   
2,408
     
2,086
     
322
     
2,249
     
24
 
Home equity
   
649
     
719
     
24
     
701
     
8
 
Commercial and multifamily
   
1,450
     
1,290
     
160
     
1,457
     
11
 
Construction and land
   
161
     
123
     
37
     
121
     
1
 
Manufactured homes
   
310
     
263
     
47
     
314
     
5
 
Other consumer
   
2
     
2
     
-
     
16
     
-
 
Commercial business
   
-
     
-
     
-
     
-
     
-
 
Total
   
4,980
     
4,483
     
590
     
4,858
     
49
 
Totals:
                                       
One- to four- family
   
4,123
     
4,200
     
322
     
4,155
     
47
 
Home equity
   
1,200
     
1,304
     
24
     
1,224
     
13
 
Commercial and multifamily
   
2,733
     
2,669
     
160
     
2,845
     
29
 
Construction and land
   
179
     
141
     
37
     
180
     
1
 
Manufactured homes
   
403
     
375
     
47
     
404
     
7
 
Other consumer
   
16
     
16
     
-
     
34
     
-
 
Commercial business
   
121
     
121
     
-
     
123
     
2
 
Total
 
$
8,775
   
$
8,826
   
$
590
   
$
8,965
   
$
99
 


17

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, 2014 by type of loan (in thousands):

 
 
Recorded
Investment
   
Unpaid
Principal Balance
   
Related
Allowance
   
Average Recorded Investment
   
Interest Income
Recognized
 
With no related allowance recorded:
 
   
   
   
   
 
One- to four- family
 
$
2,096
   
$
2,340
   
$
-
   
$
1,314
   
$
83
 
Home equity
   
494
     
555
     
-
     
370
     
17
 
Commercial and multifamily
   
1,492
     
1,542
     
-
     
1,743
     
74
 
Construction and land
   
100
     
100
     
-
     
61
     
1
 
Manufactured homes
   
87
     
94
     
-
     
93
     
7
 
Other consumer
   
21
     
21
     
-
     
19
     
3
 
Commercial business
   
124
     
124
     
-
     
230
     
6
 
Total
   
4,414
     
4,776
     
-
     
3,830
     
191
 
With an allowance recorded:
                                       
One- to four- family
   
2,090
     
2,090
     
258
     
3,082
     
93
 
Home equity
   
753
     
847
     
28
     
1,053
     
30
 
Commercial and multifamily
   
1,464
     
1,464
     
8
     
1,592
     
72
 
Construction and land
   
80
     
80
     
14
     
134
     
4
 
Manufactured homes
   
317
     
317
     
41
     
433
     
24
 
Other consumer
   
30
     
30
     
18
     
23
     
2
 
Commercial business
   
-
     
-
     
-
     
83
     
-
 
Total
   
4,734
     
4,828
     
367
     
6,400
     
225
 
Totals:
                                       
One- to four- family
   
4,186
     
4,430
     
258
     
4,396
     
176
 
Home equity
   
1,247
     
1,402
     
28
     
1,423
     
47
 
Commercial and multifamily
   
2,956
     
3,006
     
8
     
3,335
     
146
 
Construction and land
   
180
     
180
     
14
     
195
     
5
 
Manufactured homes
   
404
     
411
     
41
     
526
     
31
 
Other consumer
   
51
     
51
     
18
     
42
     
5
 
Commercial business
   
124
     
124
     
-
     
313
     
6
 
Total
 
$
9,148
   
$
9,604
   
$
367
   
$
10,230
   
$
416
 


Forgone interest on nonaccrual loans was $23,000 and $68,000 for the three months ended March 31, 2015 and 2014, respectively.  There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual, TDR or impaired at March 31, 2015 or December 31, 2014.

Troubled debt restructurings.  Loans classified as TDRs totaled $7.4 million and $7.7 million at March 31, 2015 and December 31, 2014, respectively, and are included in impaired loans.  The Company has granted in its TDRs a variety of concessions to borrowers in the form of loan modifications.  The modifications granted can generally be described in the following categories:

Rate Modification: A modification in which the interest rate is changed.

Term Modification: A modification in which the maturity date, timing of payments, or frequency of payments is changed.

Payment Modification: A modification in which the dollar amount of the payment is changed.  Interest only modifications in which a loan in converted to interest only payments for a period of time are included in this category.

Combination Modification:  Any other type of modification, including the use of multiple categories above.

18


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


There were no new TDRs that occurred during the three months ended March 31, 2015.

The following table presents new TDRs by type of modification that occurred during the three months ended March 31, 2014 (in thousands):

 
 
Three months ended March 31, 2014
 
 
 
Number of
Contracts