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FS Bancorp, Inc. Reports Net Income for the Second Quarter of $4.5 Million or $0.98 Per Diluted Share and Announces Twenty-Sixth Consecutive Quarterly Dividend

MOUNTLAKE TERRACE, Wash., July 25, 2019 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2019 second quarter net income of $4.5 million, or $0.98 per diluted share, compared to $4.3 million, or $1.13 per diluted share for the same period last year.  

“This quarter we integrated Anchor Bank’s operating systems into our core system.  We are excited to have all of our operations on one operating system,” stated CEO Joe Adams. “We are also pleased to announce that our Board of Directors has approved our twenty-sixth consecutive quarterly cash dividend of $0.15 per share.”  The dividend will be paid on August 22, 2019, to shareholders of record as of August 8, 2019.

CFO Matthew Mullet noted, “We repurchased 47,186 shares during the quarter and continue to review our long-term capital strategy with our Board of Directors.”

2019 Second Quarter Highlights

  • Net income was $4.5 million for the second quarter of 2019, compared to $5.2 million in the previous quarter, and $4.3 million for the comparable quarter one year ago;

  • Net income for the second quarter included $1.2 million in acquisition related costs and $490,000 in severance related expenses;

  • Net income for the second quarter of 2019 adjusted for $1.2 million of acquisition costs, $526,000 of net accretion on loans, certificates of deposit (“CDs”) and borrowings, and $131,000 of core deposit intangible (“CDI”) amortization (adjusted at a 21% tax rate) would have been $5.1 million, or $1.12 per diluted share (See “Non-GAAP Financial Measures”);

  • Deposits increased $12.7 million, or 1.0%, during the quarter to $1.33 billion at June 30, 2019, compared to $1.32 billion at March 31, 2019, and increased $464.1 million, or 53.3%, from $870.1 million at June 30, 2018, mainly due to the deposits assumed from the acquisition of Anchor Bancorp (“Anchor Acquisition”);

  • The Company repurchased 47,186 shares of its common stock during the quarter ended June 30, 2019, at an average price per share of $48.05; and

  • Capital levels at the Bank were 14.7% for total risk-based capital and 11.4% for Tier 1 leverage capital at June 30, 2019.

Balance Sheet and Credit Quality

Total assets increased $14.9 million, or 0.9%, to $1.64 billion at June 30, 2019, compared to $1.63 billion at March 31, 2019, and increased $508.5 million, or 44.9%, from $1.13 billion at June 30, 2018.  The quarter over linked quarter increase in total assets was primarily due to the increase in loans held for sale (“HFS”) of $20.9 million, and an increase in CDs at other financial institutions of $2.2 million, partially offset by decreases of $3.5 million in both total cash and cash equivalents and securities available-for-sale. Year over year increases in total assets included increases in loans receivable, net of $400.9 million, total cash and cash equivalents of $37.6 million, bank owned life insurance (“BOLI”) of $21.4 million, premises and equipment, net of $13.2 million, loans HFS of $11.3 million, CDs at other financial institutions of $6.7 million, other assets of $5.2 million, core deposit intangible, net of $4.7 million, and operating lease right-of-use assets of $4.6 million.  The year over year increase in loans receivable, net was primarily due to the loans acquired in the Anchor Acquisition, along with organic loan growth. 

                               
LOAN PORTFOLIO                              
(Dollars in thousands) June 30, 2019   March 31, 2019   June 30, 2018  
  Amount   Percent   Amount   Percent   Amount   Percent  
REAL ESTATE LOANS                              
Commercial $  206,834      16.0 $  208,607      16.1 $  64,599      7.2 %
Construction and development    214,140      16.5      219,229      16.9      160,521      18.0  
Home equity    36,860      2.8      40,714      3.1      25,460      2.9  
One-to-four-family (excludes HFS)    248,921      19.2      261,868      20.2      177,988      19.9  
Multi-family    103,219      8.0      102,997      8.0      47,695      5.3  
Total real estate loans    809,974      62.5      833,415      64.3      476,263      53.3  
                               
CONSUMER LOANS                              
Indirect home improvement    188,336      14.5      174,792      13.5      147,067      16.5  
Solar    44,508      3.4      44,494      3.4      42,189      4.7  
Marine    66,064      5.1      59,884      4.6      48,591      5.4  
Other consumer    4,875      0.4      5,246      0.4      2,027      0.2  
Total consumer loans    303,783      23.4      284,416      21.9      239,874      26.8  
                               
COMMERCIAL BUSINESS LOANS                              
Commercial and industrial    135,336      10.5      137,325      10.6      110,962      12.4  
Warehouse lending    47,028      3.6      41,914      3.2      66,681      7.5  
Total commercial business loans    182,364      14.1      179,239      13.8      177,643      19.9  
Total loans receivable, gross    1,296,121      100.0    1,297,070      100.0    893,780      100.0 %
                               
Allowance for loan losses    (12,340 )          (11,845 )          (11,571 )      
Deferred costs and fees, net    (2,940 )          (2,710 )          (2,885 )      
Premiums on purchased loans, net    1,278            1,408            1,876        
Total loans receivable, net $  1,282,119         $  1,283,923         $  881,200        
                                     

Loans receivable, net was relatively unchanged at $1.28 billion for both June 30, 2019 and March 31, 2019, and increased $400.9 million from $881.2 million at June 30, 2018.  The quarter over linked quarter decrease in total real estate loans was $23.4 million, including decreases in one-to-four-family portfolio of $12.9 million, construction and development of $5.1 million, home equity of $3.9 million, and commercial real estate of $1.8 million, partially offset by an increase in multi-family of $222,000. Consumer loans increased $19.4 million, primarily due to increases of $13.5 million in indirect home improvement loans and $6.2 million in marine loans. Commercial business loans increased $3.1 million, primarily due to an increase in warehouse lending of $5.1 million, partially offset by a decrease in commercial and industrial loans of $2.0 million. 

One-to-four-family loans originated through the home lending segment, which includes loans HFS, loans held for investment, fixed rate seconds, and loans brokered to other institutions, was $208.0 million during the quarter ended June 30, 2019, an increase of $64.3 million, or 44.7%, compared to $143.7 million for the preceding quarter, and an increase of $15.8 million, or 8.2% from $192.2 million, for the comparable quarter one year ago. During the six months ended June 30, 2019, originations through the home lending segment decreased by $10.6 million, or 2.9%, compared to the originations for the six months ended June 30, 2018.  During the quarter ended June 30, 2019, the Company sold $173.4 million of one-to-four-family loans, compared to sales of $130.9 million during the previous quarter, and sales of $160.6 million during the same quarter one year ago. During the six months ended June 30, 2019, the Company sold $304.3 million of one-to-four-family loans compared to sales of $315.6 million during the same period last year.

Originations of one-to-four-family loans to purchase and to refinance a home for the three and six months ended June 30, 2019 and 2018 were as follows:

                                 
(Dollars in thousands) For the Three Months
Ended
    For the Three Months
Ended
    Year   Year
  June 30, 2019     June 30, 2018     over Year   over Year
  Amount   Percent     Amount   Percent     $ Change   % Change
Purchase $  142,115   68.3 %   $  156,679   81.5 %   $  (14,564 )   (9.3 )%
Refinance    65,841   31.7        35,473   18.5        30,368     85.6 %
Total $  207,956   100.0 %   $  192,152   100.0 %   $  15,804     8.2 %


  For the Six Months
Ended
    For the Six Months
Ended
    Year   Year
  June 30, 2019     June 30, 2018     over Year   over Year
  Amount   Percent     Amount   Percent     $ Change   % Change
Purchase $  247,708   70.4 %   $  274,660   76.0 %   $  (26,952 )   (9.8 )%
Refinance    103,996   29.6        86,655   24.0        17,341     20.0
Total $  351,704   100.0 %   $  361,315   100.0 %   $  (9,611 )   (2.7 )%
                                     

The allowance for loan losses (“ALLL”) at June 30, 2019 increased to $12.3 million, or 1.0% of gross loans receivable, excluding loans HFS, compared to $11.8 million, or 0.9% of gross loans receivable, excluding loans HFS at March 31, 2019, and $11.6 million, or 1.3% of gross loans receivable, excluding loans HFS, at June 30, 2018.  Non-performing loans decreased to $1.6 million at June 30, 2019, from $3.0 million at March 31, 2019, primarily from the pay-off of a one-to-four-family loan in the amount of $834,000, the charge-off of one commercial business relationship totaling $431,000, and a transfer of a one-to-four-family loan in the amount of $88,000 to other real estate owned (“OREO”).  Non-performing loans increased to $1.6 million at June 30, 2019, from $627,000 at June 30, 2018, primarily as a result of the Anchor Acquisition.  Substandard loans decreased to $6.5 million at June 30, 2019, compared to $7.1 million at March 31, 2019, and increased from $5.8 million at June 30, 2018.  There were three OREO properties totaling $254,000 at June 30, 2019, and two OREO properties totaling $167,000 at March 31, 2019, compared to no OREO properties at June 30, 2018.

The ALLL does not include the recorded discount on loans acquired in the Anchor Acquisition of $3.7 million on $278.4 million of gross loans at June 30, 2019.

The Bank sold $10.5 million of securities available-for-sale during the second quarter of 2019 realizing a gain of $32,000.  The Bank sold these securities to reduce portfolio duration and sell lower yielding investments. The proceeds were used to pay down overnight borrowings, primarily Federal Home Loan Bank (“FHLB”) federal funds.

Total deposits increased slightly to $1.33 billion at June 30, 2019, compared to $1.32 billion at March 31, 2019, and increased $464.1 million from $870.1 million at June 30, 2018.  Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $32.7 million from March 31, 2019, primarily due to a $40.0 million increase in noninterest-bearing checking, and increased $147.3 million from June 30, 2018.  Money market and savings accounts decreased $28.1 million from March 31, 2019, and increased $77.2 million from June 30, 2018.  Time deposits increased $8.1 million from March 31, 2019, and increased $239.7 million, from June 30, 2018.  Year over year increases were primarily due to the deposits assumed in the Anchor Acquisition.

At June 30, 2019, non-retail CDs which include brokered CDs, online CDs, public deposits CDs, and public funds CDs decreased $12.0 million to $118.9 million, compared to $130.9 million at March 31, 2019, primarily due to a decrease in brokered CDs of $15.1 million, partially offset by an increase of $3.2 million in online CDs. The year over year increase in non-retail CDs of $31.4 million from $87.6 million at June 30, 2018, primarily reflects a $28.0 million increase in brokered CDs, and an increase of $3.2 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)                                    
  June 30, 2019     March 31, 2019     June 30, 2018  
  Amount     Percent     Amount   Percent     Amount   Percent  
Noninterest-bearing checking $  268,113      20.1   $  228,067    17.3   $  172,848    19.9 %
Interest-bearing checking    180,498      13.5        181,402    13.7        128,080    14.7  
Savings    117,687      8.8        122,940    9.3        77,631    8.9  
Money market    247,854      18.6        270,718    20.5        210,742    24.2  
Certificates of deposit less than $100,000    251,280      18.9        261,664    19.8        144,755    16.7  
Certificates of deposit of $100,000 through $250,000    177,718      13.3        160,899    12.2        79,131    9.1  
Certificates of deposit of $250,000 and over    79,959      6.0        78,342    5.9        45,417    5.2  
Escrow accounts related to mortgages serviced    11,108      0.8        17,518    1.3        11,509    1.3  
Total $  1,334,217      100.0   $  1,321,550    100.0   $  870,113    100.0 %
                                     

At June 30, 2019, borrowings decreased $3.6 million, or 4.2%, to $83.2 million, from $86.8 million at March 31, 2019, and decreased $23.3 million from $106.5 million at June 30, 2018.  The quarter and year to date decreases in borrowings were primarily related to the repayment of FHLB federal funds to take advantage of lower cost FHLB advances.

Total stockholders’ equity increased $3.5 million, to $189.4 million at June 30, 2019, from $186.0 million at March 31, 2019, and increased $60.1 million, from $129.4 million at June 30, 2018.  The increase in stockholders’ equity from the first quarter was primarily due to net income of $4.5 million, and a $932,000 reduction in accumulated other comprehensive loss to a gain, net of tax of $496,000, representing an increase in the fair value of our investment portfolio, partially offset by common stock repurchases of $2.5 million.  The Company repurchased 47,186 shares of its common stock during the quarter ended June 30, 2019, at an average price of $48.05 per share. At June 30, 2019, 172,378 shares remain available for repurchase pursuant to our January 2019 Share Repurchase Plan.  The $60.1 million increase in total stockholders’ equity from the second quarter of 2018 was significantly impacted by the shares issued in the Anchor Acquisition.  Book value per common share was $43.18 at June 30, 2019, compared to $42.48 at March 31, 2019, and $35.94 at June 30, 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 11.4%, and a common equity Tier 1 (“CET1”) capital ratio of 13.8% at June 30, 2019. 

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 14.4%, a Tier 1 leverage capital ratio of 11.1%, and a CET1 ratio of 13.5% at June 30, 2019.

Operating Results

Net interest income increased $5.6 million, to $17.5 million for the three months ended June 30, 2019, from $11.9 million for the three months ended June 30, 2018.  This increase was a result of an $8.0 million increase in loans receivable interest income, including additional interest from loans acquired in the Anchor Acquisition, and a $376,000 increase in interest and dividends on investment securities, and cash and cash equivalents, partially offset by a $2.6 million increase in deposit interest expense due to assumed deposits and continued organic growth combined with higher market interest rates, and a $110,000 increase in interest expense on borrowings mainly from the use of FHLB advances. Net interest income increased $11.8 million, to $35.2 million for the six months ended June 30, 2019, from $23.4 million for the six months ended June 30, 2018, mostly attributable to a $16.8 million increase in interest income on loans receivable, partially offset by a $5.9 million increase in interest expense on deposits and borrowings.  The increases in interest income and interest expense were primarily impacted by the loans acquired and deposits assumed in the Anchor Acquisition.

The net interest margin (“NIM”) increased two basis points to 4.60% for the three months ended June 30, 2019, from 4.58% for the same period in the prior year, and decreased one basis point to 4.65% for the six months ended June 30, 2019, from 4.66% for the six months ended June 30, 2018.  The quarter over quarter increase in NIM was driven primarily by a positive incremental interest accretion on loans acquired in the Anchor Acquisition of 20 basis points, partially offset by higher cost market rate deposits and increased borrowing costs. The year over year decrease in NIM was mostly driven by higher cost market rate deposits and increased borrowing costs, partially offset by a positive impact from incremental interest accretion on loans acquired in the Anchor Acquisition of 18 basis points. The average cost of funds increased 48 basis points to 1.37% for the three months ended June 30, 2019, from 0.89% for the three months ended June 30, 2018.  This increase was predominantly due to growth in higher market rate deposits, primarily those assumed in the Anchor Acquisition along with overall deposit growth. The year over year average cost of funds increased 56 basis points to 1.35% for the six months ended June 30, 2019, from 0.79% for the six months ended June 30, 2018 reflecting the increase in market interest rates over the last year.  Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three and six months ended June 30, 2019, the provision for loan losses was $910,000 and $1.7 million, compared to $450,000, and $800,000 for the three and six months ended June 30, 2018.  During the three months ended June 30, 2019, net charge-offs totaled $415,000, compared to $19,000 for the same period last year.  Net charge-offs totaled $1.7 million during the six months ended June 30, 2019, compared to net recoveries of $15,000 during the six months ended June 30, 2018.  For the three months ended June 30, 2019, the significant increase in charge-offs was primarily due to one commercial business relationship totaling $431,000, and for the six months ended June 30, 2019, the increase was primarily due to the charge-off of a commercial line of credit of $1.2 million in the first quarter of 2019.

Noninterest income increased $469,000, to $6.1 million, for the three months ended June 30, 2019, from $5.6 million for the three months ended June 30, 2018.  The increase during the period primarily reflects a $1.2 million increase in service charges and fee income primarily due to deposit accounts assumed in the Anchor Acquisition and deposit growth, partially offset by a $1.1 million decrease in gain on sale of loans.  Noninterest income was unchanged at $10.6 million for both the six months ended June 30, 2019, and June 30, 2018.  Service charges and fee income increased $2.2 million, other noninterest income increased $312,000, and earnings on cash surrender value of BOLI increased $262,000, partially offset by a decrease of $2.7 million in gain on sale of loans.

Noninterest expense increased $4.9 million, to $17.1 million for the three months ended June 30, 2019, from $12.1 million for the three months ended June 30, 2018.  The increase in noninterest expense was primarily as a result of the Anchor Acquisition and growth in our operations with increases of $1.1 million in operations, $978,000 in salaries and benefits, $656,000 in data processing, and $526,000 in occupancy expense.  Acquisition costs were $1.2 million for the three months ended June 30, 2019, compared to none for the three months ended June 30, 2018 and were primarily due to the integration of the Anchor Bank core processing platform. Noninterest expense increased $8.7 million, to $31.9 million for the six months ended June 30, 2019, from $23.2 million for the six months ended June 30, 2018.  The increase during the period was primarily due to increases of $2.2 million in salaries and benefits, $1.8 million in operations, $1.6 million in acquisition costs, $1.3 million in data processing, $989,000 in occupancy expense, $259,000 in professional and board fees, $256,000 in FDIC insurance, and $227,000 in amortization of core deposit intangible. Acquisition costs were $1.6 million for the six months ended June 30, 2019, compared to none for the same period last year.  

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
  June 30,    March 31,    June 30,    Quarter   Over Year
  2019     2019     2018     % Change   % Change
ASSETS                  
Cash and due from banks $  15,214     $  9,126     $  3,429     67     344  
Interest-bearing deposits at other financial institutions    44,380        53,948        18,548     (18 )   139  
Total cash and cash equivalents    59,594        63,074        21,977     (6 )   171  
Certificates of deposit at other financial institutions    24,297        22,073        17,611     10     38  
Securities available-for-sale, at fair value    96,252        99,783        98,465     (4 )   (2 )
Loans held for sale, at fair value    66,508        45,591        55,191     46     21  
Loans receivable, net    1,282,119        1,283,923        881,200         45  
Accrued interest receivable    5,779        5,812        4,071     (1 )   42  
Premises and equipment, net    29,517        29,318        16,273     1     81  
Operating lease right-of-use    4,582        4,849        —     (6 )   100  
Federal Home Loan Bank (“FHLB”) stock, at cost    8,329        8,157        7,742     2     8  
Other real estate owned (“OREO”)    254        167        —     52     100  
Bank owned life insurance (“BOLI”), net    34,917        34,700        13,498     1     159  
Servicing rights, held at the lower of cost or fair value    10,849        10,611        8,352     2     30  
Goodwill    2,312        2,312        2,312          
Core deposit intangible, net    5,837        6,027        1,164     (3 )   401  
Other assets    9,919        9,719        4,686     2     112  
TOTAL ASSETS $  1,641,065     $  1,626,116     $  1,132,542     1     45  
LIABILITIES                        
Deposits:                        
Noninterest-bearing accounts $  279,221     $  245,585     $  184,357     14     51  
Interest-bearing accounts    1,054,996        1,075,965        685,756     (2 )   54  
  Total deposits    1,334,217        1,321,550        870,113     1     53  
Borrowings    83,211        86,824        106,526     (4 )   (22 )
Subordinated note:                        
Principal amount    10,000        10,000        10,000      —      —  
Unamortized debt issuance costs    (125 )      (130 )      (145 )    (4 )   (14 )
  Total subordinated note less unamortized debt issuance costs    9,875        9,870        9,855          
Operating lease liability    4,721        4,976        —      (5 )   100  
Deferred tax liability, net    1,003        663        27     51      3,615  
Other liabilities    18,612        16,281        16,650     14     12  
  Total liabilities    1,451,639        1,440,164        1,003,171     1     45  
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; 4,476,864 shares issued and outstanding at June 30, 2019, 4,489,042 at March 31, 2019, and 3,708,660 at June 30, 2018    45        45        37      —     22  
Additional paid-in capital    90,418        91,742        56,344      (1 )   60  
Retained earnings    99,184        95,383        76,102     4     30  
Accumulated other comprehensive gain (loss), net of tax    496        (436 )      (2,127 )   (214 )   (123 )
Unearned shares – Employee Stock Ownership Plan (“ESOP”)    (717 )      (782 )      (985 )   (8 )   (27 )
  Total stockholders’ equity    189,426        185,952        129,371     2     46  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  1,641,065     $  1,626,116     $  1,132,542     1     45  
                                   

 

 
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
  Three Months Ended     Qtr   Year
  June 30,      March 31,    June 30,      Over Qtr   Over Year
  2019     2019     2018     % Change   % Change
INTEREST INCOME                            
Loans receivable, including fees $  21,102     $  21,109     $  13,135      —     61  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions    1,263        1,202        887     5     42  
Total interest and dividend income    22,365        22,311        14,022      —     59  
INTEREST EXPENSE                            
Deposits    4,056        3,710        1,432     9     183  
Borrowings    606        744        496     (19 )   22  
Subordinated note    169        168        169     1      —  
Total interest expense    4,831        4,622        2,097     5     130  
NET INTEREST INCOME    17,534        17,689        11,925     (1 )   47  
PROVISION FOR LOAN LOSSES    910        750        450     21     102  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES    16,624        16,939        11,475     (2 )   45  
NONINTEREST INCOME                            
Service charges and fee income    1,854        1,658        670     12     177  
Gain on sale of loans    3,576        2,397        4,671     49     (23 )
Gain on sale of investment securities    32        —        —     100     100  
Earnings on cash surrender value of BOLI    217        215        88     1     147  
Other noninterest income    404        285        185     42     118  
Total noninterest income    6,083        4,555        5,614     34     8  
NONINTEREST EXPENSE                            
Salaries and benefits    8,649        8,243        7,671     5     13  
Operations    2,658        2,044        1,541     30     72  
Occupancy    1,230        1,112        704     11     75  
Data processing    1,336        1,286        679     4     97  
Gain on sale of OREO    —        (85 )      —     (100 )    —  
OREO expenses    7        4        —     75     100  
Loan costs    707        673        704      5      —  
Professional and board fees    616        550        463     12     33  
Federal Deposit Insurance Corporation (“FDIC”) insurance    139        248        90     (44 )   54  
Marketing and advertising    191        135        215     41     (11 )
Acquisition costs    1,224        374        —     227     100  
Amortization of core deposit intangible    190        190        77      —     147  
Impairment of mortgage servicing rights    124        23        —     439     100  
Total noninterest expense    17,071        14,797       12,144      15     41  
INCOME BEFORE PROVISION FOR INCOME TAXES    5,636        6,697        4,945      (16 )   14  
PROVISION FOR INCOME TAXES    1,173        1,505        688      (22 )   70  
NET INCOME $  4,463     $  5,192     $  4,257      (14 )   5  
Basic earnings per share $  1.00     $  1.19     $  1.19      (16 )   (16 )
Diluted earnings per share $  0.98     $  1.15     $  1.13      (15 )   (13 )
                                   

 

 
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
  Six Months Ended   Year
  June 30,    June 30,    Over Year
  2019     2018   % Change
INTEREST INCOME              
Loans receivable, including fees $  42,211     $  25,391   66  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions    2,465        1,619   52  
Total interest and dividend income    44,676        27,010   65  
INTEREST EXPENSE              
Deposits    7,766        2,675   190  
Borrowings    1,350        576   134  
Subordinated note    337        337    —  
Total interest expense    9,453        3,588   163  
NET INTEREST INCOME    35,223        23,422   50  
PROVISION FOR LOAN LOSSES    1,660        800   108  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES    33,563        22,622   48  
NONINTEREST INCOME              
Service charges and fee income    3,512        1,329   164  
Gain on sale of loans    5,973        8,649   (31 )
Gain on sale of investment securities    32        113   (72 )
Earnings on cash surrender value of BOLI    432        170   154  
Other noninterest income    689        377   83  
Total noninterest income    10,638        10,638    —  
NONINTEREST EXPENSE              
Salaries and benefits    16,892        14,719   15  
Operations    4,702        2,901   62  
Occupancy    2,342        1,353   73  
Data processing    2,622        1,319   99  
Gain on sale of OREO    (85 )      —   (100 )
OREO expenses    11        —   100  
Loan costs    1,379        1,332    4  
Professional and board fees    1,166        907   29  
FDIC insurance    387        131   195  
Marketing and advertising    327        364   (10 )
Acquisition costs    1,598        —   100  
Amortization of core deposit intangible    380        153   148  
Impairment of mortgage servicing rights    147        —   100  
Total noninterest expense   31,868       23,179   37  
INCOME BEFORE PROVISION FOR INCOME TAXES    12,333        10,081   22  
PROVISION FOR INCOME TAXES    2,678        1,502   78  
NET INCOME $  9,655     $  8,579   13  
Basic earnings per share $  2.17     $  2.40   (10 )
Diluted earnings per share $  2.12     $  2.28   (7 )
                   


             
KEY FINANCIAL RATIOS AND DATA (Unaudited)            
             
  At or For the Three Months Ended  
  June 30,    March 31,    June 30,   
  2019   2019   2018  
PERFORMANCE RATIOS:            
Return on assets (ratio of net income to average total assets) (1)  1.10  1.30  1.58 %
Return on equity (ratio of net income to average equity) (1)  9.48    11.46    13.57  
Yield on average interest-earning assets  5.86    5.93    5.38  
Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities  1.37    1.33    0.89  
Interest rate spread information – average during period  4.49    4.60    4.49  
Net interest margin (1)  4.60    4.70    4.58  
Operating expense to average total assets  4.21    3.72    4.50  
Average interest-earning assets to average interest-bearing liabilities  130.30    129.86    136.32  
Efficiency ratio (2)  72.28    66.52    69.24  


         
  At or For the Six Months Ended  
  June 30,    June 30,   
  2019   2018  
PERFORMANCE RATIOS:        
Return on assets (ratio of net income to average total assets) (1)  1.20  1.65 %
Return on equity (ratio of net income to average equity) (1)  10.45    13.92  
Yield on average interest-earning assets  5.90    5.38  
Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities  1.35    0.79  
Interest rate spread information – average during period  4.55    4.59  
Net interest margin (1)  4.65    4.66  
Operating expense to average total assets  3.96    4.45  
Average interest-earning assets to average interest-bearing liabilities  130.08    137.89  
Efficiency ratio (2)  69.49    68.05  


             
  June 30,    March 31,    June 30,   
  2019   2019   2018  
ASSET QUALITY RATIOS AND DATA:            
Non-performing assets to total assets at end of period (3)  0.11  0.19  0.06 %
Non-performing loans to total gross loans (4)  0.12    0.23    0.07  
Allowance for loan losses to non-performing loans (4)  774.64    397.35    1,845.45  
Allowance for loan losses to gross loans receivable, excluding HFS loans  0.95    0.91    1.29  
             
CAPITAL RATIOS, BANK ONLY:            
Tier 1 leverage-based capital  11.38  11.01  12.23 %
Tier 1 risk-based capital  13.78    13.81    14.32  
Total risk-based capital  14.73    14.73    15.57  
Common equity Tier 1 capital  13.78    13.81    14.32  
             
CAPITAL RATIOS, COMPANY ONLY:            
Tier 1 leverage-based capital  11.11  11.06  11.86 %
Total risk-based capital  14.42    13.86    15.15  
Common equity Tier 1 capital  13.48    12.98    13.90  


                   
  At or For the Three Months Ended  
    June 30,    March 31,    June 30,   
  2019   2019   2018  
PER COMMON SHARE DATA:                  
Basic earnings per share $  1.00   $  1.19   $  1.19  
Diluted earnings per share $  0.98   $  1.15   $  1.13  
Weighted average basic shares outstanding    4,418,397      4,355,307      3,583,927  
Weighted average diluted shares outstanding    4,530,869      4,493,426      3,765,724  
Common shares outstanding at period end    4,387,061 (5)    4,377,638 (6)    3,599,515 (7)
Book value per share using common shares outstanding $  43.18   $  42.48   $  35.94  
Tangible book value per share using common shares outstanding (8) $  41.32   $  40.57   $  34.98  
  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 4,476,864 at June 30, 2019, less 25,000 unvested restricted stock shares, and 64,803 unallocated ESOP shares.
  6. 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.
  7. Common shares were calculated using shares outstanding of 3,708,660 at June 30, 2018, less 18,421 unvested restricted stock shares, and 90,724 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.
 
(Dollars in thousands)   For the Three Months
Ended June 30, 
  For the Six Months
Ended June 30, 
  QTR Over
QTR
  Year Over
Year
Average Balances   2019   2018   2019   2018   $ Change   $ Change
Assets                                    
Loans receivable, net deferred loan fees (1)   $  1,338,411   $  899,692   $  1,343,387   $  872,394   $  438,719     $  470,993
Securities available-for-sale, at fair value      99,171      96,865      99,409      93,716      2,306        5,693
Interest-bearing deposits and certificates of deposit at other financial institutions      83,805      41,952      76,030      41,346      41,853        34,684
FHLB stock, at cost      8,188      6,770      8,557      5,097      1,418        3,460
Total interest-earning assets      1,529,575      1,045,279      1,527,383      1,012,553      484,296        514,830
Noninterest-earning assets (2)      98,109      37,583      93,925      37,419      60,526        56,506
Total assets   $  1,627,684   $  1,082,862   $  1,621,308   $  1,049,972   $  544,822     $  571,336
Liabilities and stockholders’ equity                                    
Interest-bearing accounts   $  1,077,293   $  656,363   $  1,065,785   $  663,173   $  420,930     $  402,612
Borrowings      86,714      100,546      98,514      61,294      (13,832 )      37,220
Subordinated note      9,872      9,852      9,869      9,849      20        20
Total interest-bearing liabilities      1,173,879      766,761      1,174,168      734,316      407,118        439,852
Noninterest-bearing accounts      243,893      179,814      241,758      180,158      64,079        61,600
Other noninterest-bearing liabilities      21,146      10,451      19,125      11,181      10,695        7,944
Stockholders’ equity      188,766      125,836      186,257      124,317      62,930        61,940
Total liabilities and stockholders’ equity   $  1,627,684   $  1,082,862   $  1,621,308   $  1,049,972   $  544,822     $  571,336
  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
  Six
Months
Ended
(Dollars in thousands, except per share amounts) June 30,
2019
  June 30,
2019
Consolidated results:          
Net interest income after provision for loan losses (GAAP) $  16,624     $  33,563  
Net accretion/amortization on loans, CDs and borrowings    (526 )      (847 )
Net interest income after provision for loan losses, excluding net accretion/amortization on loans, CDs and borrowings (non-GAAP)    16,098        32,716  
Noninterest income    6,083        10,638  
Noninterest expense    17,071        31,868  
Acquisition costs    (1,224 )      (1,598 )
CDI amortization    (131 )      (263 )
Noninterest expense, excluding acquisition costs and acquisition-related CDI amortization (non-GAAP)    15,716        30,007  
           
Income before provision for income taxes, excluding net accretion/amortization on loans, CDs and borrowings, acquisition costs and acquisition-related CDI amortization (non-GAAP)    6,465        13,347  
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)    1,347        2,891  
NET INCOME, excluding net accretion/amortization on loans, CDs and borrowings, acquisition costs and acquisition-related CDI amortization, net of tax (non-GAAP) $  5,118     $  10,456  
           
           
Diluted earnings per share (GAAP) $  1.15     $  2.35  
Diluted earnings per share, excluding net accretion/amortization, acquisition costs and acquisition-related CDI amortization, net of tax (non-GAAP) $  1.12     $  2.29  
               

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

                 
  June 30,    March 31,    June 30, 
(Dollars in thousands, except share and per share amounts) 2019     2019     2018  
Stockholders' equity $  189,426     $  185,952     $  129,371  
Goodwill and core deposit intangible, net    (8,149 )      (8,339 )      (3,476 )
Tangible common stockholders' equity $  181,277     $  177,613     $  125,895  
                 
Common shares outstanding at end of period    4,387,061        4,377,638        3,599,515  
                 
Common stockholders' equity (book value) per share (GAAP) $  43.18     $  42.48     $  35.94  
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $  41.32     $  40.57     $  34.98  
                       


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