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FS Bancorp, Inc. Reports Net Income for the First Quarter of $5.2 Million or $1.15 Per Diluted Share and Twenty-Fifth Consecutive Quarterly Dividend

MOUNTLAKE TERRACE, Wash., April 25, 2019 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2019 first quarter net income of $5.2 million, or $1.15 per diluted share, compared to $4.3 million, or $1.15 per diluted share for the same period last year.  

“We were honored to ring the NASDAQ opening bell on April 15th in recognition of our successful Anchor Bank acquisition,” stated CEO Joe Adams. “We are also pleased to announce that our Board of Directors has approved our twenty-fifth consecutive quarterly cash dividend of $0.15 per share.”  The dividend will be paid on May 23, 2019, to shareholders of record as of May 9, 2019.

CFO Matthew Mullet noted, “We repurchased 5,436 shares during the quarter at an average price of $47.30 per share in accordance with our January 2019 Share Repurchase Plan previously approved by the Board of Directors.”

2019 First Quarter Highlights

  • Net income was $5.2 million for the first quarter of 2019, compared to $11.7 million in the previous quarter which included a $7.4 million bargain purchase gain from the acquisition of Anchor Bancorp (“Anchor Acquisition”), and $4.3 million for the comparable quarter one year ago;

  • Net income for the first quarter adjusted for $374,000 of acquisition related costs, $131,000 of core deposit intangible (“CDI”) amortization and $321,000 of net accretion/amortization on loans, certificates of deposit (“CDs”) and borrowings (adjusted at a 21% tax rate) would have been $5.3 million, or $1.18 per diluted share (See “Non-GAAP Financial Measures”);

  • Total assets increased to $1.63 billion at March 31, 2019, compared to $1.62 billion at December 31, 2018, and $1.04 billion one year ago;

  • Total gross loans decreased $29.2 million, or 2.2% during the quarter, primarily due to construction and construction warehouse loan payoffs, to $1.30 billion at March 31, 2019, compared to $1.33 billion at December 31, 2018, and increased $479.4 million, or 58.6%, from $817.7 million at March 31, 2018, relating to the loans acquired from the Anchor Acquisition of $311.6 million at March 31, 2019;

  • Deposits increased $47.3 million, or 3.7%, during the quarter to $1.32 billion at March 31, 2019, compared to $1.27 billion at December 31, 2018, and increased $464.1 million, or 54.1%, from $857.5 million at March 31, 2018, mainly due to the deposits acquired from the Anchor Acquisition of $343.6 million at March 31, 2019; and

  • Capital levels at the Bank were 14.7% for total risk-based capital and 11.0% for Tier 1 leverage capital at March 31, 2019, compared to 13.5% and 10.7% at December 31, 2018, respectively.

Balance Sheet and Credit Quality

Total assets increased $4.5 million, or 0.3%, to $1.63 billion at March 31, 2019, compared to $1.62 billion at December 31, 2018, and increased $582.5 million, or 55.8%, from $1.04 billion at March 31, 2018.  The quarter over linked quarter increase in total assets included increases in total cash and cash equivalents of $30.3 million, operating lease right-of-use asset of $4.8 million, other assets of $2.7 million, and securities available-for-sale of $2.6 million, partially offset by a decrease in loans receivable, net of $28.6 million, loans held for sale (“HFS”) of $5.6 million, and Federal Home Loan Bank (“FHLB”) stock of $1.7 million. The year over year increase was primarily due to the $474.9 million of assets acquired in the Anchor Acquisition, with the remaining growth partially funded by organic growth in deposits. 

                                 
LOAN PORTFOLIO                                
(Dollars in thousands)   March 31, 2019   December 31, 2018   March 31, 2018  
    Amount   Percent   Amount   Percent   Amount   Percent  
REAL ESTATE LOANS                                
Commercial   $  208,607      16.1 $  204,699      15.4 $  61,956      7.6 %
Construction and development      219,229      16.9      247,306      18.7      143,611      17.5  
Home equity      40,714      3.1      40,258      3.0      23,563      2.9  
One-to-four-family (excludes HFS)      261,868      20.2      249,397      18.8      165,030      20.2  
Multi-family      102,997      8.0      104,663      7.9      52,431      6.4  
Total real estate loans      833,415      64.3      846,323      63.8      446,591      54.6  
                                 
CONSUMER LOANS                                
Indirect home improvement      174,792      13.5      167,793      12.7      136,946      16.8  
Solar      44,494      3.4      44,433      3.3      41,581      5.1  
Marine      59,884      4.6      57,822      4.4      38,451      4.7  
Other consumer      5,246      0.4      5,425      0.4      1,951      0.2  
Total consumer loans      284,416      21.9      275,473      20.8      218,929      26.8  
                                 
COMMERCIAL BUSINESS LOANS                                
Commercial and industrial      137,325      10.6      138,686      10.4      104,612      12.8  
Warehouse lending      41,914      3.2      65,756      5.0      47,563      5.8  
Total commercial business loans      179,239      13.8      204,442      15.4      152,175      18.6  
Total loans receivable, gross      1,297,070      100.0    1,326,238      100.0    817,695      100.0 %
                                 
Allowance for loan losses      (11,845 )          (12,349 )          (11,140 )      
Deferred costs and fees, net      (2,710 )          (2,907 )          (2,760 )      
Premiums on purchased loans      1,408            1,537            1,837        
Total loans receivable, net   $  1,283,923         $  1,312,519         $  805,632        

Loans receivable, net decreased $28.6 million to $1.28 billion at March 31, 2019, from $1.31 billion at December 31, 2018, and increased $478.3 million from $805.6 million at March 31, 2018.  The quarter over linked quarter decrease in real estate loans was $12.9 million, including decreases in construction and development of $28.1 million and multi-family of $1.7 million, partially offset by increases in the one-to-four-family portfolio of $12.5 million, commercial of $3.9 million, and home equity of $456,000. Commercial business loans decreased $25.2 million, primarily due to a decrease in construction warehouse lending of $21.7 million, as well as a decrease in commercial and industrial loans of $1.4 million.  Consumer loans increased $8.9 million, primarily due to an increase of $7.0 million in indirect home improvement loans and $2.1 million in marine loans. The year over year increase was primarily due to the loans acquired in the Anchor Acquisition, along with organic loan growth.

One-to-four-family loans originated through the home lending segment which includes loans HFS, loans held for investment, fixed seconds, and loans brokered to other institutions was $143.7 million during the quarter ended March 31, 2019, a decrease of $11.8 million, or 7.6%, compared to $155.5 million for the preceding quarter, and decreased 15.6% from $170.2 million, for the comparable quarter one year ago. During the quarter ended March 31, 2019, the Company sold $130.9 million of one-to-four-family loans, compared to sales of $147.1 million during the previous quarter, and sales of $155.0 million during the same quarter one year ago.

Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended March 31, 2019 and 2018 were as follows:

                                     
(Dollars in thousands)   For the Three Months Ended       For the Three Months Ended   Year   Year  
    March 31, 2019       March 31, 2018   over Year   over Year  
    Amount   Percent       Amount   Percent   $ Change   % Change  
Purchase   $  105,518   73.4 %     $  117,982   69.3 % $  (12,464 )   (10.6 )%  
Refinance      38,155   26.6          52,205   30.7      (14,050 )   (26.9 )%  
Total   $  143,673   100.0 %     $  170,187   100.0 % $  (26,514 )    (15.6 )%  

The allowance for loan losses (“ALLL”) at March 31, 2019 decreased to $11.8 million, or 0.9% of gross loans receivable, excluding loans HFS, compared to $12.3 million, or 0.9% of gross loans receivable, excluding loans HFS at December 31, 2018, and $11.1 million, or 1.4% of gross loans receivable, excluding loans HFS, at March 31, 2018.  The linked quarter decrease in ALLL was primarily due to a $1.2 million charge-off of a commercial line of credit, partially offset by the $750,000 provision for loan losses. Non-performing loans, consisting solely of non-accruing loans, decreased to $3.0 million at March 31, 2019, from $4.2 million at December 31, 2018, primarily from the $1.2 million charge-off mentioned above, and increased from $720,000 at March 31, 2018, due to the Anchor Acquisition.  Substandard loans decreased $1.2 million for the same reason to $7.1 million at March 31, 2019, compared to $8.3 million at December 31, 2018, and were $6.0 million at March 31, 2018.  There were two other real estate owned (“OREO”) properties totaling $167,000 at March 31, 2019 and $689,000 at December 31, 2018, compared to no OREO at March 31, 2018.

The allowance does not include the recorded discount on loans acquired in the Anchor Acquisition of $4.5 million on $313.7 million of gross loans at March 31, 2019.

Total deposits increased to $1.32 billion at March 31, 2019, compared to $1.27 billion at December 31, 2018, and $857.5 million at March 31, 2018.  Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $41.4 million, from December 31, 2018, primarily due to the $30.3 million increase in interest-bearing checking, and increased $106.7 million, from March 31, 2018.  Money market and savings accounts decreased $11.3 million from December 31, 2018, and increased $102.1 million from March 31, 2018.  Time deposits increased $17.3 million, from December 31, 2018, and increased $255.2 million, from March 31, 2018.  Year over year increases were primarily due to the deposits assumed in the Anchor Acquisition.

At March 31, 2019, non-retail CDs which include brokered CDs, online CDs, public deposits CDs, and public funds CDs increased $3.4 million to $130.9 million, compared to $127.5 million at December 31, 2018, primarily due an increase in brokered CDs of $13.0 million, partially offset by a decrease of $9.6 million due to a public deposit CD assumed in the Anchor Acquisition maturing during the quarter. The year over year increase in non-retail CDs of $46.7 million from $84.2 million at March 31, 2018, primarily reflects a $52.2 million increase in brokered CDs, partially offset by a decrease of $5.8 million in online CDs.  Management remains focused on increasing our lower cost relationship-based deposits to fund long-term asset growth.

                                 
DEPOSIT BREAKDOWN                                
(Dollars in thousands)                                
    March 31, 2019   December 31, 2018   March 31, 2018  
    Amount   Percent   Amount   Percent   Amount   Percent  
Noninterest-bearing checking   $  228,067    17.3 $  221,107    17.3 $  177,251    20.7 %
Interest-bearing checking      181,402    13.7      151,103    11.9      130,002    15.2  
Savings      122,940    9.3      122,344    9.6      76,843    9.0  
Money market      270,718    20.5      282,595    22.2      214,676    25.0  
Certificates of deposit less than $100,000      261,664    19.8      243,193    19.1      129,778    15.1  
Certificates of deposit of $100,000 through $250,000      160,899    12.2      154,095    12.1      73,934    8.6  
Certificates of deposit of $250,000 and over      78,342    5.9      86,357    6.8      41,944    4.9  
Escrow accounts related to mortgages serviced      17,518    1.3      13,425    1.0      13,050    1.5  
Total   $  1,321,550    100.0 $  1,274,219    100.0 $  857,478    100.0 %

At March 31, 2019, borrowings decreased $50.3 million, or 36.7%, to $86.8 million, from $137.1 million at December 31, 2018, and increased $47.3 million from $39.5 million at March 31, 2018.  The decrease in borrowings during the current quarter was primarily related to an $83.2 million pay down of FHLB Fed Funds using funds from deposit growth, partially offset by a $32.8 million increase in term FHLB advances. The year over year increase was primarily due to an increase in FHLB overnight borrowings.

Total stockholders’ equity increased $5.9 million, to $186.0 million at March 31, 2019, from $180.0 million at December 31, 2018, and increased $60.5 million, from $125.4 million at March 31, 2018.  The increase in stockholders’ equity during the current quarter from December 31, 2018 was primarily due to net income of $5.2 million, and a decrease in accumulated other comprehensive loss, net of tax of $1.0 million, partially offset by common stock repurchases of $257,000.  The Company repurchased 5,436 of its common stock during the quarter ended March 31, 2019, at an average price of $47.30 per share.  At March 31, 2019, 219,564 shares remained available for repurchase as authorized pursuant to our January 2019 Share Repurchase Plan.  Book value per common share was $42.48 at March 31, 2019, compared to $41.19 at December 31, 2018, and $35.21 at March 31, 2018.

The Bank is well capitalized under the minimum capital requirements established by the FDIC with a total risk-based capital ratio of 14.7%, a Tier 1 leverage capital ratio of 11.0%, and a common equity Tier 1 (“CET1”) capital ratio of 13.8% at March 31, 2019.  At December 31, 2018, the total risk-based capital ratio was 13.5%, the Tier 1 leverage capital ratio was 10.7%, and the CET1 capital ratio was 12.6%.

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 13.9%, a Tier 1 leverage capital ratio of 11.1%, and a CET1 ratio of 13.0% at March 31, 2019, compared to 13.3%, 12.1%, and 12.4%, respectively, at December 31, 2018.

Operating Results

Net interest income increased $6.2 million, to $17.7 million for the three months ended March 31, 2019, from $11.5 million for the three months ended March 31, 2018.  This increase was a result of an $8.9 million increase in loans receivable interest income, including additional interest from loans acquired in the Anchor Acquisition, and a $470,000 increase in interest and dividends on investment securities, and cash and cash equivalents, partially offset by a $2.5 million increase in deposit interest expense due to assumed deposits and continued organic growth in interest-bearing deposits with higher market interest rates paid on new interest-bearing deposits, and a $664,000 increase in interest expense on borrowings mainly from the use of FHLB advances to support loan growth.

The net interest margin (“NIM”) decreased six basis points to 4.70% for the three months ended March 31, 2019, from 4.76% for the same period in the prior year.  The decrease in NIM for the comparable quarter year over year was driven primarily by higher cost market rate deposits and increased borrowing costs to fund loan growth, partially offset by a positive impact from incremental interest accretion on loans acquired in the Anchor Acquisition of 15 basis points. The average cost of funds increased 64 basis points to 1.33% for the three months ended March 31, 2019, from 0.69% for the three months ended March 31, 2018.  This increase was predominantly due to growth in CDs, primarily those assumed in the Anchor Acquisition along with overall deposit growth, and an increase in FHLB borrowings.  Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three months ended March 31, 2019, the provision for loan losses was $750,000, compared to $350,000 for the three months ended March 31, 2018.  During the three months ended March 31, 2019, net charge-offs totaled $1.3 million, compared to net recoveries of $34,000 for the same period last year.  The significant increase in charge-offs compared to the prior year’s net recovery was primarily due to one commercial line of credit charge-off in the amount of $1.2 million.

Noninterest income decreased $469,000, to $4.6 million for the three months ended March 31, 2019, from $5.0 million for the three months ended March 31, 2018.  The decrease during the period primarily reflects a $1.6 million reduction in gain on sale of loans, partially offset by a $1.0 million increase in service charges and fee income primarily due to deposit accounts assumed in the Anchor Acquisition and deposit growth. 

Noninterest expense increased $3.8 million, to $14.8 million for the three months ended March 31, 2019, from $11.0 million for the three months ended March 31, 2018.  The increase in noninterest expense was primarily due to the Anchor Acquisition and growth in our operations with increases of $1.2 million in salaries and benefits, $685,000 in operations, $645,000 in data processing, $464,000 in occupancy expense, $374,000 in acquisition costs, and $207,000 in FDIC insurance premiums. Total salaries and benefits expense also includes a $480,000 decrease in incentives and commissions reflecting lower one-to-four-family loan originations.

Merger related activity in the first quarter was focused on the integration of the Anchor Bank core processing platform scheduled for the second quarter of 2019.  Merger related expenses, as noted above, include integration costs as well as legal expenses associated with consolidating the two companies.  Management anticipates the bulk of the remaining merger related expenses to be recognized in the second quarter of 2019.

About FS Bancorp

FS Bancorp, Inc., a Washington corporation, is the holding company for 1st Security Bank of Washington.  The Bank provides loan and deposit services to customers who are predominantly small- and middle-market businesses and individuals in Western Washington through its 21 bank branches, including nine branches from the Anchor Acquisition, one administrative office that accepts deposits, and seven loan production offices in various suburban communities in the greater Puget Sound area, and one loan production office in the market area of the Tri-Cities, Washington.  The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities home lending markets.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‑looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control.  Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: the expected cost savings, synergies and other financial benefits from our recent acquisition of Anchor  might not be realized within the expected time frames or at all; the integration of the combined company, including personnel changes/retention, might not proceed as planned; and the combined company might not perform as well as expected; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; our ability to execute our plans to grow our residential construction lending, mortgage banking, and warehouse lending operations, and the geographic expansion of our indirect home improvement lending; secondary market conditions for loans and our ability to originate loans for sale and sell loans in the secondary market; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission which are available on our website at www.fsbwa.com and on the SEC's website at www.sec.gov.  Any of the forward-looking statements that we make in this press release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee.  Therefore, these factors should be considered in evaluating the forward‑looking statements, and undue reliance should not be placed on such statements.  We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These risks could cause our actual results for 2019 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of us and could negatively affect our operating and stock performance.

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts) (Unaudited)

                             
                      Linked   Year  
    March 31,    December 31,    March 31,    Quarter   Over Year  
    2019   2018   2018   % Change   % Change  
ASSETS                      
Cash and due from banks   $  9,126     $  9,408     $  3,532     (3 )   158    
Interest-bearing deposits at other financial institutions      53,948        23,371        22,108     131     144    
Total cash and cash equivalents      63,074        32,779        25,640     92     146    
Certificates of deposit at other financial institutions      22,073        22,074        17,611         25    
Securities available-for-sale, at fair value      99,783        97,205        91,371     3     9    
Loans held for sale, at fair value      45,591        51,195        51,315     (11 )   (11 )  
Loans receivable, net      1,283,923        1,312,519        805,632     (2 )   59    
Accrued interest receivable      5,812        5,761        3,693     1     57    
Premises and equipment, net      29,318        29,110        15,798     1     86    
Operating lease right-of-use      4,849        —        —     100     100    
Federal Home Loan Bank (“FHLB”) stock, at cost      8,157        9,887        4,308     (17 )   89    
Other real estate owned (“OREO”)      167        689        —     (76 )   100    
Bank owned life insurance (“BOLI”), net      34,700        34,485        13,410     1     159    
Servicing rights, held at the lower of cost or fair value      10,611        10,429        7,515     2     41    
Goodwill      2,312        2,312        2,312          —    
Core deposit intangible, net      6,027        6,217        1,240     (3 )   386    
Other assets      9,719        6,982        3,767     39     158    
TOTAL ASSETS   $  1,626,116     $  1,621,644     $  1,043,612         56    
LIABILITIES                            
Deposits:                            
Noninterest-bearing accounts   $  245,585     $  234,532     $  190,301     5     29    
Interest-bearing accounts      1,075,965        1,039,687        667,177     3     61    
Total deposits      1,321,550        1,274,219        857,478     4     54    
Borrowings      86,824        137,149        39,529     (37 )   120    
Subordinated note:                            
Principal amount      10,000        10,000        10,000      —      —    
Unamortized debt issuance costs      (130 )      (135 )      (150 )   (4 )   (13 )  
 Total subordinated note less unamortized debt issuance costs      9,870        9,865        9,850            
Operating lease liability      4,976        —        —     100     100    
Deferred tax liability, net      663        361        137     84     384    
Other liabilities      16,281        20,012        11,176     (19 )   46    
 Total liabilities      1,440,164        1,441,606        918,170         57    
COMMITMENTS AND CONTINGENCIES                            
STOCKHOLDERS’ EQUITY                            
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued or outstanding
     —        —                  
Common stock, $.01 par value; 45,000,000 shares authorized;
4,489,042 shares issued and outstanding at March 31, 2019,
4,492,478 at December 31, 2018, and 3,695,552 at
March 31, 2018
     45        45        37      —     22    
Additional paid-in capital      91,742        91,466        55,823         64    
Retained earnings      95,383        90,854        72,349     5     32    
Accumulated other comprehensive loss, net of tax      (436 )      (1,479 )      (1,716 )   (71 )   (75 )  
Unearned shares – Employee Stock Ownership Plan (“ESOP”)      (782 )      (848 )      (1,051 )   (8 )   (26 )  
Total stockholders’ equity      185,952        180,038        125,442     3     48    
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $  1,626,116     $  1,621,644     $  1,043,612         56    


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)

                 
    Three Months Ended   Year
    March 31,    Over Year
    2019   2018   % Change
INTEREST INCOME            
Loans receivable, including fees   $  21,109     $  12,256   72  
Interest and dividends on investment securities, cash and cash equivalents, and
certificates of deposit at other financial institutions
     1,202        732   64  
Total interest and dividend income      22,311        12,988   72  
INTEREST EXPENSE                
Deposits      3,710        1,244   198  
Borrowings      744        80   830  
Subordinated note      168        167    1  
Total interest expense      4,622        1,491   210  
NET INTEREST INCOME      17,689        11,497   54  
PROVISION FOR LOAN LOSSES      750        350   114  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES      16,939        11,147   52  
NONINTEREST INCOME                
Service charges and fee income      1,658        659   152  
Gain on sale of loans      2,397        3,978   (40 )
Gain on sale of investment securities      —        113   (100 )
Earnings on cash surrender value of BOLI      215        82   162  
Other noninterest income      285        192   48  
Total noninterest income      4,555        5,024   (9 )
NONINTEREST EXPENSE                
Salaries and benefits      8,243        7,048   17  
Operations      2,044        1,359   50  
Occupancy      1,112        648   72  
Data processing      1,286        641   101  
Gain on sale of OREO      (85 )      —   (100 )
OREO expenses      4        —   100  
Loan costs      673        629   7  
Professional and board fees      550        444   24  
Federal Deposit Insurance Corporation (“FDIC”) insurance      248        41   505  
Marketing and advertising      135        149   (9 )
Acquisition costs      374        —   100  
Amortization of core deposit intangible      190        77   147  
Impairment on mortgage servicing rights      23        —   100  
Total noninterest expense      14,797        11,036   34  
INCOME BEFORE PROVISION FOR INCOME TAXES      6,697        5,135   30  
PROVISION FOR INCOME TAXES      1,505        813   85  
NET INCOME   $  5,192     $  4,322   20  
Basic earnings per share   $  1.19     $  1.22   (2 )
Diluted earnings per share   $  1.15     $  1.15    —  


               
KEY FINANCIAL RATIOS AND DATA (Unaudited)              
(Dollars in thousands, except per share amounts)              
    At or For the Three Months Ended  
    March 31,    December 31,    March 31,   
    2019   2018   2018  
PERFORMANCE RATIOS:              
Return on assets (ratio of net income to average total assets) (1)    1.30  3.24  1.72 %
Return on equity (ratio of net income to average equity) (1)    11.46    29.80    14.28  
Yield on average interest-earning assets    5.93    5.73    5.38  
Interest incurred on liabilities as a percentage of average noninterest
bearing deposits and interest-bearing liabilities
   1.33    1.23    0.69  
Interest rate spread information – average during period    4.60    4.50    4.69  
Net interest margin (1)    4.70    4.59    4.76  
Operating expense to average total assets    3.72    3.83    4.40  
Average interest-earning assets to average interest-bearing liabilities    129.86    130.15    139.62  
Efficiency ratio (2)    66.52    50.77    66.80  


               
    March 31,    December 31,    March 31,   
    2019   2018   2018  
ASSET QUALITY RATIOS AND DATA:              
Non-performing assets to total assets at end of period (3)    0.19  0.28  0.07 %
Non-performing loans to total gross loans (4)    0.23    0.31    0.09  
Allowance for loan losses to non-performing loans (4)    397.35    297.35    1,547.22  
Allowance for loan losses to gross loans receivable, excluding HFS loans    0.91    0.93    1.36  
               
CAPITAL RATIOS, BANK ONLY:              
Tier 1 leverage-based capital    11.01  10.67  12.58 %
Tier 1 risk-based capital    13.81    12.62    14.96  
Total risk-based capital    14.73    13.52    16.21  
Common equity Tier 1 capital    13.81    12.62    14.96  
               
CAPITAL RATIOS, COMPANY ONLY:              
Tier 1 leverage-based capital    11.06  12.07  12.20 %
Total risk-based capital    13.86    13.32    15.76  
Common equity Tier 1 capital    12.98    12.41    14.51  


                     
    At or For the Three Months Ended  
      March 31,    December 31,    March 31,   
    2019   2018   2018  
PER COMMON SHARE DATA:                    
Basic earnings per share   $  1.19   $  2.93   $  1.22  
Diluted earnings per share   $  1.15   $  2.83   $  1.15  
Weighted average basic shares outstanding      4,380,307      4,000,584      3,556,581  
Weighted average diluted shares outstanding      4,518,426      4,139,570      3,751,537  
Common shares outstanding at period end      4,377,638 (5)    4,371,294 (6)    3,563,006 (7)
Book value per share using common shares outstanding   $  42.48   $  41.19   $  35.21  
Tangible book value per share using common shares outstanding (8)   $  40.57   $  39.24   $  34.21  
  1. Annualized.
  2. Total noninterest expense as a percentage of net interest income and total other noninterest income.
  3. Non-performing assets consist of non-performing loans (which include non-accruing loans and accruing loans more than 90 days past due), foreclosed real estate and other repossessed assets.
  4. Non-performing loans consist of non-accruing loans and accruing loans 90 days or more past due.
  5. Common shares were calculated using shares outstanding of 4,489,042 at March 31, 2019, less 40,121 unvested restricted stock shares, and 71,283 unallocated ESOP shares.
  6. Common shares were calculated using shares outstanding of 4,492,478 at December 31, 2018, less 43,421 unvested restricted stock shares, and 77,763 unallocated ESOP shares.
  7. Common shares were calculated using shares outstanding of 3,695,552 at March 31, 2018, less 35,342 unvested restricted stock shares, and 97,204 unallocated ESOP shares.
  8. Tangible book value per share using outstanding common shares excludes intangible assets. This ratio represents a non-GAAP financial measure.  See also non-GAAP financial measures below.
                   
    For the Three Months Ended
March 31, 
  Year Over Year
Average Balances   2019   2018   $ Change
Assets                  
Loans receivable, net deferred loan fees (1)   $  1,348,418   $  844,794   $  503,624
Securities available-for-sale, at fair value      99,650      90,532      9,118
Interest-bearing deposits and certificates of deposit at other financial institutions      68,169      40,734      27,435
FHLB stock, at cost      8,930      3,404      5,526
Total interest-earning assets      1,525,167      979,464      545,703
Noninterest-earning assets (2)      89,694      37,254      52,440
Total assets   $  1,614,861   $  1,016,718   $  598,143
Liabilities and stockholders’ equity                  
Interest-bearing accounts   $  1,054,149   $  670,058   $  384,091
Borrowings      110,445      21,604      88,841
Subordinated note      9,867      9,847      20
Total interest-bearing liabilities      1,174,461      701,509      472,952
Noninterest-bearing accounts      239,598      180,507      59,091
Other noninterest-bearing liabilities      17,082      11,921      5,161
Stockholders’ equity      183,720      122,781      60,939
Total liabilities and stockholders’ equity   $  1,614,861   $  1,016,718   $  598,143
  1. Includes loans held for sale.
  2. Includes fixed assets, operating lease right-of-use asset, BOLI, goodwill, and CDI.


Non-GAAP Financial Measures:

In addition to results presented in accordance with generally accepted accounting principles utilized in the United States (“GAAP”), this earnings release contains certain non-GAAP financial measures: net income and diluted earnings per share, excluding net accretion/amortization on loans, CDs, and borrowings, acquisition costs, and acquisition-related CDI amortization, net of tax; and tangible book value per share. Management believes these non-GAAP financial measures provide useful and comparative information to assess trends reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. The after-tax impact of acquisition-related costs to net income which we have recorded in connection with the Anchor Acquisition provides meaningful supplemental information that management believes is useful to readers.  Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

Tangible common stockholders’ equity is calculated by excluding intangible assets from stockholders’ equity. For this financial measure, the Company’s intangible assets are goodwill and core deposit intangible. Tangible book value per share is calculated by dividing tangible common shareholders’ equity by the number of common shares outstanding. The Company believes that this measure is consistent with the capital treatment by the investment community, which excludes intangible assets from the calculation of risk-based capital ratios and presents this measure to facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors. 

These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for total stockholders' equity or operating results determined in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

Reconciliation of net income, excluding net accretion/amortization on loans, CDs and borrowings, acquisition costs and acquisition-related CDI amortization, net of tax is presented below.

       
    Three Months Ended
(in thousands)   March 31, 2019
Consolidated results:      
Net interest income after provision for loan losses (GAAP)   $  16,939  
Net accretion/amortization on loans, CDs and borrowings      (321 )
Net interest income after provision for loan losses, excluding net accretion/amortization on loans, CDs and
borrowings (non-GAAP)
     16,618  
Noninterest income      4,555  
Noninterest expense      14,797  
Acquisition costs      (374 )
CDI amortization      (131 )
Noninterest expense, excluding acquisition costs and acquisition-related CDI amortization (non-GAAP)      14,292  
       
Income before provision for income taxes, excluding net accretion/amortization on loans, CDs and borrowings,
acquisition costs and acquisition-related CDI amortization (non-GAAP)
     6,881  
Provision for income taxes, excluding net accretion/amortization on loans, CDs and borrowings, acquisition
costs and acquisition-related CDI amortization, net of related taxes (non-GAAP)
     1,544  
NET INCOME, excluding net accretion/amortization on loans, CDs and borrowings, acquisition costs and
acquisition-related CDI amortization, net of tax (non-GAAP)
  $  5,337  
       
       
Diluted earnings per share (GAAP)   $  1.15  
Diluted earnings per share, excluding net accretion/amortization, acquisition costs and acquisition-related CDI amortization, net of tax (non-GAAP)      1.18  

Reconciliation of the GAAP book value per share and non-GAAP tangible book value per share is presented below.

                   
    March 31,    December 31,    March 31, 
    2019   2018   2018
  (Dollars in thousands)
Stockholders' equity   $  185,952     $  180,038     $  125,442  
Goodwill and core deposit intangible, net      (8,339 )      (8,529 )      (3,552 )
Tangible common stockholders' equity   $  177,613     $  171,509     $  121,890  
                   
Common shares outstanding at end of period      4,377,638        4,371,294        3,563,006  
                   
Common stockholders' equity (book value) per share (GAAP)   $  42.48     $  41.19     $  35.21  
Tangible common stockholders' equity (tangible book value) per share (non-
GAAP)
  $  40.57     $  39.24     $  34.21  


   
Contacts:   
Joseph C. Adams,  
Chief Executive Officer  
Matthew D. Mullet,  
Chief Financial Officer and Chief Operating Officer  
(425) 771-5299  
www.FSBWA.com