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Exhibit 99.1

Sound Financial Bancorp, Inc. Reports 2nd Quarter

Net Income of $1.3 million or $0.49 per share

Board Declares dividend of $.075 per share

Seattle, Wash., July 28, 2016 -- Sound Financial Bancorp, Inc. (Nasdaq: SFBC), the holding company (the "Company") for Sound Community Bank (the "Bank"), today reported net income of $1.3 million for the quarter ended June 30, 2016, or diluted earnings per share of $0.49, as compared to net income of $1.1 million, or diluted earnings per share of $0.43, for the quarter ended March 31, 2016 and $1.2 million, or diluted earnings per share of $0.48, for the quarter ended June 30, 2015.

“We are pleased with the Company’s performance for the first half of 2016.  The Company continues to experience growth in net interest income and loan losses remain near all-time lows,” said Laurie Stewart, President and CEO of the Company and the  Bank.  Ms. Stewart continued, “The local economy is one of the strongest in the nation with robust job growth.  This strong environment helps us continue to offer products to businesses and consumers that allow us to diversify our balance sheet and grow revenues.”

 

In addition, the Company announced today that the Board of Directors has declared a cash dividend on Company common stock of $0.075 per share, payable on August 26, 2016 to stockholders of record as of the close of business on August 12, 2016.

Highlights for the quarter include:

●	Net interest income increased $110,000, or 2.1%, to $5.4 million during the quarter ended June 30, 2016, compared to $5.3 million during the quarter ended March 31, 2016 and increased $704,000, or 14.9%, from $4.7 million during the quarter ended June 30, 2015

●	Total assets decreased 0.3% to $541.8 million at June 30, 2016, from $543.5 million at March 31, 2016 and increased 7.6% from $503.4 million at June 30, 2015

●	Net loans increased 0.5% to $459.8 million at June 30, 2016, from $457.7 million at March 31, 2016 and increased 6.9% from $430.0 million at June 30, 2015

●	Deposits decreased 0.9% to $443.9 million at June 30, 2016, from $448.1 million at March 31, 2016 and increased 6.0% from $418.6 million at June 30, 2015

●	The gain on the sale of loans was $341,000 for the three months ended June 30, 2016 compared to $210,000 for the three months ended March 31, 2016 and $390,000 at June 30, 2015

●	The mortgage servicing asset decreased in value by $69,000, or 2.2%, to $3.0 million at June 30, 2016, from $3.1 million at March 31, 2016 and decreased in value by $245,000, or 7.5%, from $3.3 million at June 30, 2015

Capital ratios at June 30, 2016 exceeded regulatory requirements for a well-capitalized financial institution.

Operating Results

Net interest income increased $110,000, or 2.1%, to $5.4 million during the quarter ended June 30, 2016, compared to $5.3 million during the quarter ended March 31, 2016 and increased $704,000, or 14.9%, from $4.7 million during the quarter ended June 30, 2015.  The change from the prior quarter was primarily a result of higher average loan balances and loan yields. The higher yields resulted from a change to the loan mix during the most recent quarter, with an increase in the one-to four- family portfolio and a decrease in the commercial and multifamily portfolio. The change from the comparable period a year ago was primarily a result of higher average loan balances partially offset by higher borrowing rates and average balances.  The weighted average yield on the loan portfolio was 5.17% for the quarter ended June 30, 2016, compared to 5.18% for the quarter ended March 31, 2016 and 5.01% for the quarter ended June 30, 2015.

 

Interest expense decreased $8,000, or 1.1%, to $709,000 during the quarter ended June 30, 2016, compared to $717,000 during the quarter ended March 31, 2016 and increased $29,000, or 4.3%, compared to the quarter ended June 30, 2015.  Interest expense on deposits decreased $33,000, or 4.8% to $655,000 for the quarter ended June 30, 2016, compared to $688,000 for the quarter ended March 31, 2016 and decreased $6,000, or 0.9%, from $661,000 during the quarter ended June 30, 2015.  The decrease from both comparative periods was primarily the result of lower overall deposit funding costs for the period ended June 30, 2016 which declined to 0.66% at June 30, 2016, as compared to  0.68 % and  0.70% at March 31, 2016 and June 30, 2015, respectively.  The total cost of borrowings increased $25,000, or 86.2%, to $54,000 during the quarter ended June 30, 2016, from $29,000 during the quarter ended March 31, 2016 and increased $35,000, or 184.2%, from $19,000 for the quarter ended June 30, 2015.  This increase was primarily a result of an increase in average borrowings in the current period compared to the prior periods and as compared to last year, an increase in overnight borrowing rates reflecting the recent increase in the federal funds rate. Average borrowings, consisting of Federal Home Loan Bank advances, increased to $38.9 million for the quarter ended June 30, 2016, compared to $22.5 million for the quarter ended March 31, 2016 and $15.1 during the quarter ended June 30, 2015.

Net interest margin was 4.26% for the quarter ended June 30, 2016, compared to 4.25% for the quarter ended March 31, 2016 and 4.11% for the quarter ended June 30, 2015.  The increase from the year ago period was primarily a result of higher loan yields.

The provision for loan losses in the quarter ended June 30, 2016 was $100,000, compared to $150,000 for the quarter ended March 31, 2016 and $200,000 for the quarter ended June 30, 2015.  The decrease from the prior quarter was primarily due to a net recovery of $29,000 during the quarter ended June 30, 2016.

Noninterest income increased $233,000, or 23.8%, to $1.2 million for the quarter ended June 30, 2016, compared to $1.0 million for the quarter ended March 31, 2016.  Noninterest income decreased $496,000, or 29.1%, from $1.7 million for the quarter ended June 30, 2015.  This increase from the preceding quarter was primarily the result of higher gains on the sale of mortgage loans. The decrease from the year ago period was due a reduction in in the fair market value of mortgage servicing rights as compared to an increase in  value and a decrease in the gains on sale of mortgage loans. The negative fair value adjustment on mortgage servicing rights for the quarter ended June 30, 2016 was due to lower mortgage interest rates as compared to the same period last year.

Noninterest expense increased $196,000, or 4.4%, to $4.7 million for the quarter ended June 30, 2016, compared to $4.5 million for the quarter ended March 31, 2016.  The increase was primarily a result of increased operations and data processing expenses during the current period.  Noninterest expense increased $257,000, or 5.8% for the quarter ended June 30, 2016, compared to $4.4 million for the quarter ended June 30, 2015, primarily from higher salaries and benefits due to an increase in full time equivalent employees and operations expense, partially offset by lower regulatory and occupancy expense.

The efficiency ratio for the quarter ended June 30, 2016 was 69.51%, compared to 70.27% for the quarter ended March 31, 2016 and 68.21% for the quarter ended June 30, 2015.  The decrease in the efficiency ratio compared to the prior quarter was primarily due to higher net interest income and higher noninterest income.  The increase in the efficiency ratio compared to the year ago quarter was primarily due to higher salaries and benefits, operations expense and lower noninterest income, partially offset by higher net interest income.

Balance Sheet Review, Capital Management and Credit Quality

Total assets at June 30, 2016 were $541.8 million, compared to $543.5 million at March 31, 2016 and $503.4 million at June 30, 2015.  The decrease from the prior quarter was primarily a result of lower cash balances.  The increase from a year ago was primarily a result of higher gross loan and cash balances which increased $30.1 million and $11.1 million, respectively, from June 30, 2015.

Investment securities available-for-sale totaled $7.4 million at June 30, 2016, compared to $6.3 million at March 31, 2016 and $7.9 million at June 30, 2015.  The quarter over quarter increase was a result of the purchase of $1.4 million in municipal bonds offset by normal principal pay downs. The year over year decrease was due to normal principal paydowns.

 

Gross loans totaled $464.6 million at June 30, 2016, compared to $462.4 million at March 31, 2016 and $434.6 million at June 30, 2015.  At June 30, 2016, commercial and multifamily real estate loans accounted for 35.3% of the gross loan portfolio and one- to four-family loans accounted for 32.2% of the portfolio.  Home equity, manufactured, and other consumer loans accounted for 15.4% of the portfolio.  Construction and land loans accounted for 12.4% of the portfolio and commercial and industrial loans accounted for the remaining 4.7% of the portfolio.

Nonperforming assets ("NPAs"), which includes non-accrual loans, accruing loans 90 days and more delinquent, nonperforming troubled debt restructurings (“TDRs”), other real estate owned (“OREO”) and other repossessed assets increased to $5.3 million, or 0.97% of total assets, at June 30, 2016 compared to $3.0 million, or 0.54% of total assets at March 31, 2016 and increased from $2.6 million, or 0.52% of total assets at June 30, 2015.   The increase in the current period reflects the inclusion of a $2.3 million multifamily property in Port Angeles, WA, which was placed on non-accrual status during the three months ended June 30, 2016.  There is a specific reserve for this loan totaling $389,000 as of June 30, 2016. This is our largest nonperforming loan as of June 30, 2016.

The following table summarizes our NPAs:

The following table summarizes the allowance for loan losses:

 

The allowance for loan losses to total loans increased to 1.04% for the quarter ended June 30, 2016, compared to 1.02% for the quarter ended March 31, 2016 and from 1.05% for the quarter ended June 30, 2015.  There was a net recovery of $29,000 for the quarter ended June 30, 2016, compared to net charge-offs of $77,000 for the quarter ended March 31, 2016 and $64,000 for the quarter ended June 30, 2015.

Deposits decreased to $443.9 million at June 30, 2016, compared to $448.1 million at March 31, 2016 and increased from $418.6 million at June 30, 2015.  Borrowings increased to $35.6 million at June 30, 2016, compared to $31.4 million at March 31, 2016 and from $26.3 million at June 30, 2015.  An increase in total loans and a decrease in total deposits during the quarter ended June 30, 2016 led to the increase in borrowings.

 

Forward Looking Statement Disclaimer

When used in filings by Sound Financial Bancorp, Inc. (the "Company”) with the Securities and Exchange Commission (the “SEC”), in the Company's press releases or other public or stockholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business.  These statements are only predictions based on our current expectations and projections about future events, and may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated below or because of other important factors that we cannot foresee that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.

Factors which could cause actual results to differ materially, include, but are not limited to: changes in economic conditions; legislative changes; changes in policies by regulatory agencies; fluctuations in interest rates;; the risks of lending and investing activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; the Company's ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in the Company's market area; secondary market conditions for loans; results of examinations of the Company or its wholly owned bank subsidiary by their regulators; competition; changes in management’s business strategies and other factors described in the Company’s latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – which are available at www.soundcb.com and on the SEC’s website at www.sec.gov.

The Company does not undertake - and specifically declines any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

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Nm = not meaningful

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(1)

The Common Equity Tier 1 (CET1) ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2016.  Under BASEL III, the regulatory capital requirements to be considered well capitalized are 5% for Leverage-based capital, 6.5% for CET1, 8% for Tier 1 risk-based capital and 10% for total risk-based capital.

 

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