SFFS Sound Federal Bancorp (MM)

Sound Federal Bancorp, Inc. Announces Third Fiscal Quarter Earnings WHITE PLAINS, N.Y., Jan. 26 /PRNewswire-FirstCall/ -- Sound Federal Bancorp, Inc. (NASDAQ:SFFS) (the "Company"), the holding company for Sound Federal Savings (the "Bank"), announced net income of $1.4 million or diluted earnings per share of $0.12 for the quarter ended December 31, 2004, as compared to $1.8 million or diluted earnings per share of $0.14 for the quarter ended December 31, 2003, a decrease of 20.6% in net income. The decrease in net income for the quarter ended December 31, 2004 is primarily attributable to a $664,000 increase in non-interest expense, partially offset by a $177,000 decrease in income tax expense. For the nine months ended December 31, 2004, net income amounted to $4.4 million or diluted earnings per share of $0.36, as compared to $5.2 million or diluted earnings per share of $0.41 for the same period in 2003, a decrease of 15.7% in net income. The decrease in net income for the nine months ended December 31, 2004 reflects an increase of $1.9 million in non-interest expense, partially offset by an increase of $417,000 in net interest income and a decrease of $446,000 in income tax expense. Bruno J. Gioffre, Chairman of the Board, commented, "The flattening yield curve continues to impact our net interest rate spread and net interest margin. Our net interest rate spread decreased 8 basis points to 2.63% from the September 30, 2004 quarter and our net interest margin decreased 9 basis points to 2.85% during the same period. Despite these decreases, net interest income remained substantially unchanged from the prior linked quarter. We achieved this with steady growth in our loan portfolio and the growth of deposit accounts. The growth in deposit accounts is due primarily to our de- novo branch strategy which we believe will grow the value of the franchise. Asset quality remains very strong with non-performing loans amounting to $734,000 or 0.13% of total loans at December 31, 2004. As we begin the fourth quarter of our 2005 fiscal year, we look forward to fiscal 2006 and the opportunity to continue to grow the Sound Federal franchise. We believe that this course of action will increase stockholder value." The Company's total assets amounted to $984.4 million at December 31, 2004 as compared to $890.5 million at March 31, 2004. The $93.9 million increase in assets primarily consisted of a $63.5 million increase in net loans to $542.0 million and a $27.2 million increase in securities to $364.9 million. Our asset growth was funded principally by a $94.7 million increase in deposits to $803.0 million. The increase in securities consisted of a $69.4 million increase in securities classified as held to maturity and a $42.2 million decrease in securities available for sale. In June 2004, the Company began to classify substantially all securities purchases as held to maturity. This decision was based on the size of the portfolio classified as available for sale relative to interest-earning assets and stockholders' equity, the Company's liquidity position, which allows the Company to hold securities until maturity and an increase in market interest rates. As these factors change in the future, the Company will evaluate the classification of future securities purchases. Total stockholders' equity decreased $6.0 million to $131.1 million at December 31, 2004 as compared to $137.1 million at March 31, 2004. The decrease reflects treasury stock purchases at a cost of $8.3 million, dividends paid of $2.2 million and a decrease of $2.0 million attributable to the change in accumulated other comprehensive income or loss, partially offset by net income of $4.4 million. The accumulated other comprehensive loss of $1.3 million at December 31, 2004 represents the after-tax net unrealized loss on securities available for sale ($2.1 million pre-tax). The Company invests primarily in mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac, as well as U.S. Government and Agency securities. The unrealized losses at December 31, 2004 were caused by increases in market yields subsequent to purchase. There were no debt securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the security. Because the Company has the ability to hold securities with unrealized losses until a market price recovery (which, for debt securities may be until maturity), the Company did not consider these securities to be other-than-temporarily impaired at December 31, 2004. Net interest income for the quarter ended December 31, 2004 remained relatively unchanged at $6.7 million as compared to the same quarter in the prior year. Our net interest rate spread was 2.63% and 2.92% for the quarters ended December 31, 2004 and 2003, respectively. Our net interest margin for those respective periods was 2.85% and 3.17%. For the nine months ended December 31, 2004, net interest income amounted to $19.8 million as compared to $19.4 million for the same period last year. Our net interest rate spread was 2.71% and 2.93% and our net interest margin was 2.93% and 3.22% for the respective 2004 and 2003 nine month periods. The decreases in net interest rate spread and net interest margin are primarily the result of the effect of mortgage refinancings, lower rates on new loans originated and lower returns on our investment portfolio, as interest rates remained near 40-year lows. Since July 2004, the Federal Reserve has raised the Federal funds rate by 125 basis points to 2.25%. However, long-term rates have remained substantially unchanged, resulting in a flattening yield curve. As short-term interest rates rise, the cost of our interest-bearing liabilities will increase faster than the yield on our interest-earning assets which are affected by longer- term interest rates. As a result, our net interest rate spread and net interest margin may continue to decrease. Non-interest income totaled $382,000 and $252,000 for the quarters ended December 31, 2004 and 2003, respectively. For the nine months ended December 31, 2004, non-interest income amounted to $1.0 million as compared to $765,000 for the nine months ended December 31, 2003. The increases in non-interest income were primarily due to increases in the cash surrender value of bank- owned life insurance which was purchased in December 2003. Non-interest expense totaled $4.6 million for the quarter ended December 31, 2004 as compared to $3.9 million for the quarter ended December 31, 2003. This increase is due to increases of $431,000 in compensation and benefits, $120,000 in occupancy and equipment expense, and $161,000 in other non- interest expense, partially offset by a $42,000 decrease in advertising and promotion expense. The increase in compensation and benefits expense is due primarily to a $260,000 increase in expense related to stock awards made pursuant to the Company's 2004 Stock Incentive Plan and a $116,000 increase in compensation costs due primarily to additional staff to support the growth in the Company's lending operations and the addition of the Brookfield branch, which opened in June 2004. At December 31, 2004, we had 124 full-time equivalent employees as compared to 119 at December 31, 2003. For the nine months ended December 31, 2004, non-interest expense increased $1.9 million to $13.5 million as compared to $11.6 million for the nine months ended December 31, 2003. This increase is due primarily to increases of $1.3 million in compensation and benefits, $268,000 in occupancy and equipment expense, $127,000 in data processing service fees, and $326,000 in other non-interest expense, partially offset by a decrease of $103,000 in advertising and promotion expense. The increase in compensation and benefits expense for the nine month period is due primarily to a $779,000 increase in expense related to stock awards and a $431,000 increase in compensation costs. The increase in occupancy and equipment expense is primarily due to the addition of the Stamford and Brookfield branches, which opened in September 2003 and June 2004, respectively. The decrease in advertising and promotion expense is primarily due to the timing of the marketing campaigns for the new branch locations. Other non-interest expense for the three and nine months ended December 31, 2004 includes $135,000 and $270,000, respectively, of costs related to the Company's implementation of the internal controls and procedures provisions of the Sarbanes-Oxley Act of 2002. There were no comparable costs in the same periods a year ago. The Bank is a federally-chartered savings bank offering traditional financial services and products through its New York branches in Mamaroneck, Harrison, Rye Brook, New Rochelle, Peekskill, Yorktown, Somers and Cortlandt in Westchester County and New City in Rockland County, and in Connecticut in Greenwich, Stamford and Brookfield. This press release contains certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company and the Bank. These estimates are subject to various factors that could cause actual results to differ materially from these estimates. Such factors include (i) the effect that an adverse movement in interest rates could have on net interest income, (ii) customer preferences, (iii) national and local economic and market conditions, (iv) higher than anticipated operating expenses and (v) a lower level of or higher cost for deposits than anticipated. The Company disclaims any obligation to publicly announce future events or developments that may affect the forward- looking statements herein. Balance sheets, statements of income and other financial data are attached. Sound Federal Bancorp, Inc. and Subsidiary CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share data) December 31, March 31, 2004 2004 Assets Cash and due from banks $ 10,493 $ 10,455 Federal funds sold and other overnight deposits 21,150 20,756 Securities: Available for sale, at fair value 295,497 337,730 Held to maturity, at amortized cost 69,430 - Total securities 364,927 337,730 Loans, net: Mortgage loans 542,135 477,771 Consumer loans 2,757 3,396 Allowance for loan losses (2,937) (2,712) Total loans, net 541,955 478,455 Accrued interest receivable 3,857 3,623 Federal Home Loan Bank stock 5,738 5,303 Premises and equipment, net 5,969 5,630 Goodwill 13,970 13,970 Bank-owned life insurance 10,373 10,085 Prepaid pension costs 2,954 2,547 Deferred income taxes 1,091 - Other assets 1,895 1,987 Total assets $ 984,372 $ 890,541 Liabilities and Stockholders' Equity Liabilities: Deposits $ 802,990 $ 708,330 Borrowings 38,000 35,000 Mortgagors' escrow funds 6,012 4,522 Due to brokers for securities purchased 3,916 4,000 Accrued expenses and other liabilities 2,320 1,630 Total liabilities 853,238 753,482 Stockholders' equity: Preferred stock ($0.01 par value; 1,000,000 shares authorized; none issued and outstanding) - - Common stock ($0.01 par value; 24,000,000 shares authorized; 13,636,170 shares issued) 136 136 Additional paid-in capital 103,372 102,637 Treasury stock, at cost (1,028,329 and 459,297 shares at December 31, 2004 and March 31, 2004, respectively) (14,644) (7,150) Common stock held by Employee Stock Ownership Plan (6,178) (6,556) Unearned stock awards (4,731) (5,618) Retained earnings 54,448 52,908 Accumulated other comprehensive (loss) income, net of taxes (1,269) 702 Total stockholders' equity 131,134 137,059 Total liabilities and stockholders' equity $ 984,372 $ 890,541 Sound Federal Bancorp, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) For the Three For the Nine Months Ended Months Ended December 31, December 31, 2004 2003 2004 2003 Interest and Dividend Income Loans $ 7,482 $ 6,641 $ 21,733 $ 19,900 Mortgage-backed and other securities 3,101 3,186 8,917 8,693 Federal funds sold and other overnight deposits 113 46 245 220 Other earning assets 32 - 87 123 Total interest and dividend income 10,728 9,873 30,982 28,936 Interest Expense Deposits 3,677 2,798 10,002 8,342 Borrowings 371 381 1,126 1,130 Other interest-bearing liabilities 5 7 15 42 Total interest expense 4,053 3,186 11,143 9,514 Net interest income 6,675 6,687 19,839 19,422 Provision for loan losses 75 75 225 200 Net interest income after provision for loan losses 6,600 6,612 19,614 19,222 Non-Interest Income Service charges and fees 244 252 740 765 Increase in cash surrender value of bank-owned life insurance 121 - 287 - Gains on sales of mortgage loans 17 - 17 - Total non-interest income 382 252 1,044 765 Non-Interest Expense Compensation and benefits 2,538 2,107 7,412 6,105 Occupancy and equipment 673 553 1,967 1,699 Data processing service fees 314 320 878 751 Advertising and promotion 189 231 679 782 Other 886 725 2,557 2,231 Total non-interest expense 4,600 3,936 13,493 11,568 Income before income tax expense 2,382 2,928 7,165 8,419 Income tax expense 956 1,133 2,811 3,257 Net income $ 1,426 $ 1,795 $ 4,354 $ 5,162 Earnings per share: Basic earnings per share $ 0.12 $ 0.15 $ 0.37 $ 0.42 Diluted earnings per share $ 0.12 $ 0.14 $ 0.36 $ 0.41 Sound Federal Bancorp, Inc. and Subsidiary Other Financial Data (Unaudited) (Dollars in thousands, except per share data) At or for the Quarter Ended Dec. 31, Sept. 30, June 30, March 31, Dec. 31, 2004 2004 2004 2004 2003 Net interest income $ 6,675 $ 6,706 $ 6,458 $ 6,770 $ 6,687 Provision for loan losses 75 75 75 75 75 Non-interest income 382 310 352 276 252 Non-interest expense: Compensation and benefits 2,538 2,462 2,412 2,628 2,107 Occupancy and equipment 673 661 633 592 553 Other non-interest expense 1,389 1,478 1,247 1,318 1,276 Total non-interest expense 4,600 4,601 4,292 4,538 3,936 Income before income tax expense 2,382 2,340 2,443 2,433 2,928 Income tax expense 956 909 946 977 1,133 Net income $ 1,426 $ 1,431 $ 1,497 $ 1,456 $ 1,795 Total assets $ 984,372 $ 965,388 $ 914,610 $ 890,541 $ 881,637 Loans, net 541,955 529,638 501,239 478,455 461,453 Mortgage-backed securities Available for sale 216,133 231,986 246,850 255,853 269,604 Held to maturity 54,717 30,691 7,157 - - Other securities Available for sale 79,364 84,986 85,427 81,877 86,656 Held to maturity 14,713 10,640 2,796 - - Deposits 802,990 789,794 746,160 708,330 698,416 Borrowings 38,000 38,000 38,000 35,000 35,000 Stockholders' equity 131,134 129,439 125,016 137,059 132,091 Performance Data: Return on average assets(1) 0.58% 0.60% 0.66% 0.67% 0.82% Return on average equity(1) 4.38% 4.56% 4.49% 4.49% 5.26% Net interest rate spread(1) 2.63% 2.71% 2.80% 2.98% 2.92% Net interest margin(1) 2.85% 2.94% 3.02% 3.20% 3.17% Efficiency ratio(2) 65.18% 65.58% 63.02% 64.41% 56.72% Per Common Share Data: Basic earnings per common share $ 0.12 $ 0.12 $ 0.13 $ 0.12 $ 0.15 Diluted earnings per common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.14 Book value per share(3) $ 10.40 $ 10.29 $ 9.96 $ 10.40 $ 10.32 Tangible book value per share(3) $ 9.29 $ 9.18 $ 8.85 $ 9.34 $ 9.23 Dividends per share $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06 Capital Ratios: Equity to total assets (consolidated) 13.32% 13.41% 13.67% 15.39% 14.98% Tier 1 leverage capital (Bank) 10.37% 10.40% 10.71% 10.92% 10.74% Asset Quality Data: Total non-performing loans $ 734 $ 963 $ 1,728 $ 1,981 $ 1,290 Total non-performing assets $ 734 $ 963 $ 1,728 $ 1,981 $ 1,290 (1) Ratios are annualized. (2) Computed by dividing non-interest expense by the sum of net interest income and non-interest income. (3) Computed based on total common shares issued, less treasury shares. DATASOURCE: Sound Federal Bancorp, Inc. CONTACT: Anthony J. Fabiano, Senior Vice President, Chief Financial Officer and Corporate Secretary, +1-914-761-3636 Web site: http://www.soundfed.com/

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