SFFS Sound Federal Bancorp (MM)

WHITE PLAINS, N.Y., April 28 /PRNewswire-FirstCall/ -- Sound Federal Bancorp, Inc. (NASDAQ:SFFS) (the "Company"), the holding company for Sound Federal Savings (the "Bank"), announced net income of $635,000 or diluted earnings per share of $0.05 for the quarter ended March 31, 2006 as compared to $1.12 million or diluted earnings per share of $0.10 for the quarter ended March 31, 2005. Net income for the quarter ended March 31, 2006 included $480,000 of merger costs related to the Company's announced merger with Hudson City Bancorp, Inc. A substantial majority of these costs are not tax deductible. Excluding merger costs, net income amounted to $1.09 million for the fourth fiscal quarter. The $480,000 decrease in net income for the quarter ended March 31, 2006 as compared to the same quarter in 2005 was primarily due to an $885,000 increase in non-interest expense, including the merger-related costs, partially offset by a $446,000 increase in net interest income. For the year ended March 31, 2006, net income amounted to $4.16 million or diluted earnings per share of $0.35, as compared to $5.47 million or diluted earnings per share of $0.46 for fiscal 2005, a decrease of $1.31 million or 23.9% in net income. Excluding merger costs totaling $541,000 incurred during fiscal year 2006, net income amounted to $4.66 million. The decrease in net income for the year ended March 31, 2006 is primarily attributable to a $2.6 million increase in non-interest expense, including the merger-related costs, partially offset by increases of $408,000 in non- interest income and $398,000 in net interest income, and a $530,000 decrease in income tax expense. Bruno J. Gioffre, Chairman of the Board, commented, "Net income for the quarter, excluding merger costs of $480,000, was $1.09 million. The flat yield curve continues to affect our earnings. Our net interest margin decreased 34 basis points to 2.57% for fiscal year 2006. However, our ability to originate loans and increase deposits enabled us to increase net interest income by 1.5% despite the reduction in net interest margin. During fiscal 2006, we increased the size of our loan portfolio by 32.2% and our deposit balances by 20.7%." Mr. Gioffre continued, "As we previously announced, the Company entered into a merger agreement with Hudson City Bancorp, Inc. This transaction provides our stockholders $20.75 in cash for each share of Sound Federal Bancorp, Inc. common stock they own. For those stockholders who bought their shares in our initial public offering in 1998, this represents a 474% return on their investment excluding dividends paid on these shares. In addition, we believe that our customers will be very pleased with Hudson City's product offerings and their commitment to providing the same level of personal service that our customers have come to expect of Sound Federal. The Board of Directors and I are very proud of the dedication and loyalty of the Sound Federal staff. Their hard work helped to build and enhance the Sound Federal franchise by constantly focusing on providing superior customer service. This merger with Hudson City will enable us to continue this tradition of service to customers and the community." The Company's total assets amounted to $1.2 billion at March 31, 2006, as compared to $1.0 billion at March 31, 2005. The $162.6 million increase in assets primarily consisted of a $180.8 million increase in net loans to $741.6 million, partially offset by a decrease in total securities of $28.9 million. Our asset growth was funded principally by a $171.9 million increase in deposits to $1.0 billion. Total stockholders' equity increased $1.5 million to $128.7 million at March 31, 2006 as compared to $127.2 million at March 31, 2005. The increase reflects net income of $4.2 million and total increases of $3.2 million related to stock options, stock awards and ESOP shares, partially offset by common stock repurchases at a cost of $1.4 million, dividends paid of $3.3 million and an increase of $1.2 million in the accumulated other comprehensive loss. The accumulated other comprehensive loss of $3.9 million at March 31, 2006 represents the after-tax net unrealized loss on securities available for sale ($6.5 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 March 31, 2006 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 and intent 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 March 31, 2006. Net interest income for the quarter ended March 31, 2006 increased $446,000 to $7.0 million as compared to $6.6 million for the quarter ended March 31, 2005. Our net interest rate spread was 2.30% and 2.62% for the quarters ended March 31, 2006 and 2005, respectively. Our net interest margin for those respective periods was 2.60% and 2.85%. For the fiscal year ended March 31, 2006, net interest income amounted to $26.8 million as compared to $26.4 million for the prior year. Our interest rate spread was 2.29% and 2.69% and our net interest margin was 2.57% and 2.91% for fiscal years 2006 and 2005, respectively. The decreases in interest rate spread and net interest margin are primarily the result of a decrease in the spread between short and long-term market interest rates. At March 31, 2006, the spread between the 1-month and 10-year Treasury yield rates was 21 basis points as compared to 187 basis points at March 31, 2005. As a result, the Company's average cost of interest-bearing liabilities has increased faster than the yield on interest-earning assets which are principally affected by longer-term interest rates. The provision for loan losses was $75,000 for the quarters ended March 31, 2006 and 2005 and $300,000 for fiscal years 2006 and 2005. Non-performing loans amounted to $2.9 million or 0.39% of total loans at March 31, 2006, as compared to $580,000 or 0.10% of total loans at March 31, 2005. The allowance for loan losses amounted to $3.3 million and $3.0 million at March 31, 2006 and March 31, 2005, respectively. Charge-offs amounted to $2,000 during fiscal 2006 and $1,000 during fiscal 2005. The increase in the allowance for loan losses primarily reflects an increase in the origination of adjustable rate mortgage loans, commercial mortgage loans and commercial loans (not secured by real estate), as well as overall portfolio growth. Non-interest income totaled $362,000 and $403,000 for the quarters ended March 31, 2006 and 2005, respectively. For the fiscal year ended March 31, 2006, non-interest income amounted to $1.9 million as compared to $1.4 million for the prior year. The increase in non-interest income for the year was primarily due to a $325,000 gain on the sale of real estate which was completed in September 2005. The property was contiguous to an existing branch site. Management determined that this property was not going to be used in connection with the operation of the branch. Non-interest expense totaled $6.0 million for the quarter ended March 31, 2006 as compared to $5.1 million for the quarter ended March 31, 2005. This increase is due to increases of $527,000 in compensation and benefits expense and $480,000 in merger costs as previously discussed. For the fiscal year ended March 31, 2006, non-interest expense increased $2.6 million to $21.2 million as compared to $18.6 million for the fiscal year ended March 31, 2005. This increase is due primarily to increases of $1.8 million in compensation and benefits, $301,000 in occupancy and equipment expense, $96,000 in advertising and promotion expense and $541,000 in merger costs. Income tax expense amounted to $722,000 for the quarters ended March 31, 2006 and 2005. The effective tax rates for those same periods were 53.2% and 39.3%, respectively. Income tax expense amounted to $3.0 million and $3.5 million for fiscal years 2006 and 2005, respectively. The effective tax rates for those respective fiscal years were 41.9% and 39.2%. The increases in the effective tax rates are due primarily to merger costs that are not deductible for tax purposes. 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, Cortlandt and Carmel in Westchester County and New City in Rockland County, and in Connecticut in Greenwich, Stamford, Brookfield and Bethel. 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) March 31, March 31, 2006 2005 Assets Cash and due from banks $12,194 $11,512 Federal funds sold and other overnight deposits 42,092 31,095 Securities: Available for sale, at fair value 215,455 276,154 Held to maturity, at amortized cost 111,246 79,489 Total securities 326,701 355,643 Loans, net: Mortgage loans 737,274 558,662 Other loans 7,624 5,100 Allowance for loan losses (3,309) (3,011) Total loans, net 741,589 560,751 Accrued interest receivable 5,319 4,277 Federal Home Loan Bank stock 2,842 5,738 Premises and equipment, net 5,546 6,214 Goodwill 13,970 13,970 Bank-owned life insurance 10,845 10,464 Prepaid pension costs 4,177 3,057 Deferred income taxes 2,645 2,236 Other assets 1,671 1,993 Total assets $1,169,591 $1,006,950 Liabilities and Stockholders' Equity Liabilities: Deposits $1,003,691 $831,768 Borrowings 28,000 38,000 Mortgagors' escrow funds 6,160 5,264 Due to brokers for securities purchased - 2,513 Accrued expenses and other liabilities 3,054 2,245 Total liabilities 1,040,905 879,790 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; 12,336,040 and 12,377,206 shares outstanding at March 31, 2006 and March 31, 2005, respectively) 136 136 Additional paid-in capital 105,092 103,728 Treasury stock, at cost (1,300,130 and 1,258,964 shares at March 31, 2006 and March 31, 2005, respectively) (18,813) (18,131) Common stock held by Employee Stock Ownership Plan (5,549) (6,053) Unearned stock awards (3,252) (4,435) Retained earnings 54,960 54,638 Accumulated other comprehensive loss, net of taxes (3,888) (2,723) Total stockholders' equity 128,686 127,160 Total liabilities and stockholders' equity $1,169,591 $1,006,950 Sound Federal Bancorp, Inc. and Subsidiary CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) For the Three For the Months Ended Year Ended March 31, March 31, 2006 2005 2006 2005 Interest and Dividend Income Loans $10,423 $7,697 $37,395 $29,430 Mortgage-backed and other securities 3,369 3,081 12,761 11,998 Federal funds sold and other overnight deposits 306 95 972 340 Other earning assets 73 45 313 132 Total interest and dividend income 14,171 10,918 51,441 41,900 Interest Expense Deposits 6,830 3,966 23,207 13,968 Borrowings 306 363 1,390 1,489 Other interest-bearing liabilities 5 5 23 20 Total interest expense 7,141 4,334 24,620 15,477 Net interest income 7,030 6,584 26,821 26,423 Provision for loan losses 75 75 300 300 Net interest income after provision for loan losses 6,955 6,509 26,521 26,123 Non-Interest Income Service charges and fees 264 213 1,149 953 Income on bank-owned life insurance 98 92 381 379 Gain on sale of assets - 93 325 93 Gain on sale of mortgage loans - 5 - 22 Total non-interest income 362 403 1,855 1,447 Non-Interest Expense Compensation and benefits 3,060 2,533 11,697 9,945 Occupancy and equipment 782 750 3,018 2,717 Data processing service fees 320 340 1,230 1,218 Advertising and promotion 387 440 1,215 1,119 Merger-related costs 480 - 541 - Other 931 1,012 3,508 3,569 Total non-interest expense 5,960 5,075 21,209 18,568 Income before income tax expense 1,357 1,837 7,167 9,002 Income tax expense 722 722 3,003 3,533 Net income $635 $1,115 $4,164 $5,469 Earnings per share: Basic earnings per share $0.06 $0.10 $0.36 $0.47 Diluted earnings per share $0.05 $0.10 $0.35 $0.46 Sound Federal Bancorp, Inc. and Subsidiary Other Financial Data (Unaudited) (Dollars in thousands, except per share data) At or for the Quarter Ended March 31, Dec. 31, Sept. 30, 2006 2005 2005 Net interest income $7,030 $6,723 $6,548 Provision for loan losses 75 75 75 Non-interest income 362 346 778 Non-interest expense: Compensation and benefits 3,059 2,969 2,841 Occupancy and equipment 782 748 751 Other non-interest expense 2,119 1,528 1,442 Total non-interest expense 5,960 5,245 5,034 Income before income tax expense 1,357 1,749 2,217 Income tax expense 722 703 858 Net income $635 $1,046 $1,359 Total assets $1,169,591 $1,149,326 $1,083,065 Loans, net 741,589 710,750 668,019 Mortgage-backed securities Available for sale 140,053 150,758 165,474 Held to maturity 65,303 64,988 60,530 Other securities Available for sale 75,402 76,779 77,183 Held to maturity 45,943 42,943 34,211 Deposits 1,003,691 969,702 913,722 Borrowings 28,000 35,000 35,000 Stockholders' equity 128,686 128,651 128,179 Performance Data: Return on average assets(1) 0.23% 0.37% 0.51% Return on average equity(1) 2.02% 3.25% 4.14% Net interest rate spread(1) 2.30% 2.20% 2.27% Net interest margin(1) 2.60% 2.50% 2.55% Efficiency ratio(2) 74.13% 74.20% 71.90% Per Common Share Data: Basic earnings per common share $0.06 $0.09 $0.12 Diluted earnings per common share $0.05 $0.09 $0.12 Book value per share(3) $10.43 $10.44 $10.41 Tangible book value per share(3) $9.30 $9.31 $9.28 Dividends per share $0.075 $0.075 $0.070 Capital Ratios: Equity to total assets (consolidated) 11.00% 11.19% 11.83% Tier 1 leverage capital (Bank) 9.34% 9.43% 9.80% Asset Quality Data: Total non-performing loans $2,893 $2,689 $1,285 Total non-performing assets $2,893 $2,689 $1,285 At or for the Quarter Ended June 30, March 31, 2005 2005 Net interest income $6,520 $6,584 Provision for loan losses 75 75 Non-interest income 369 403 Non-interest expense: Compensation and benefits 2,827 2,533 Occupancy and equipment 737 750 Other non-interest expense 1,406 1,792 Total non-interest expense 4,970 5,075 Income before income tax expense 1,844 1,837 Income tax expense 720 722 Net income $1,124 $1,115 Total assets $1,060,811 $1,006,950 Loans, net 613,481 560,751 Mortgage-backed securities Available for sale 184,491 199,746 Held to maturity 60,314 59,777 Other securities Available for sale 76,988 76,408 Held to maturity 23,713 19,712 Deposits 890,191 831,768 Borrowings 35,000 38,000 Stockholders' equity 128,084 127,160 Performance Data: Return on average assets(1) 0.44% 0.46% Return on average equity(1) 3.57% 3.51% Net interest rate spread(1) 2.41% 2.62% Net interest margin(1) 2.66% 2.85% Efficiency ratio(2) 72.14% 73.61% Per Common Share Data: Basic earnings per common share $0.10 $0.10 Diluted earnings per common share $0.10 $0.10 Book value per share(3) $10.41 $10.27 Tangible book value per share(3) $9.28 $9.15 Dividends per share $0.065 $0.06 Capital Ratios: Equity to total assets (consolidated) 12.07% 12.63% Tier 1 leverage capital (Bank) 9.85% 10.24% Asset Quality Data: Total non-performing loans $2,183 $580 Total non-performing assets $2,183 $580 (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 of Sound Federal Bancorp, Inc., +1-914-761-3636 Web site: http://www.soundfed.com/

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