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CORRECTING AND REPLACING -- FS Bancorp, Inc. Reports Net Income for the Second Quarter of $4.3 Million Driven by Quarterly Loan Growth of 9.3% and Declares Twenty-Second Consecutive Quarterly Dividend

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MOUNTLAKE TERRACE, Wash., Aug. 03, 2018 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ:FSBW) issued a press release on July 26, 2018 announcing its 2018 second quarter results.  FS Bancorp, Inc. seeks to correct that its basic and diluted earnings per share for the six months ended June 30, 2018 included in the Consolidated Statements of Income were $2.40 and $2.28, rather than what was previously reported as $2.39 and $2.27, respectively.

The corrected release reads as follows:

FS Bancorp, Inc. (NASDAQ:FSBW) (the "Company"), the holding company for 1st Security Bank of Washington (the "Bank") today reported 2018 second quarter net income of $4.3 million and quarterly loan growth of 9.3% which contributed to the increase in assets to $1.1 billion at June 30, 2018.  Second quarter earnings per diluted share were $1.13 and includes a 19.7% increase in net interest income over the comparable quarter one year ago.

"We experienced exceptional loan growth in the second quarter as a result of our new production employees and strength of our historical lending teams, helping drive profitability," stated Joe Adams, CEO of FS Bancorp, Inc.

"We are also pleased with the proposed merger of the Company and Anchor Bancorp ('Anchor') (NASDAQ:ANCB) that was announced on July 17, 2018. The combined company will have approximately $1.5 billion in assets, $1.2 billion in deposits, 22 branch offices throughout Western Washington, and eight loan production offices in Washington State."  CEO Adams added, "Our lending growth combined with our acquisition of Anchor and the franchise's long standing history of banking in the communities served will strengthen and build upon our presence in Western Washington and is consistent with our business strategy to appropriately utilize capital and increase operating efficiency and profitability to enhance our banking franchise for the benefit of both our shareholders and the communities we serve."   

CFO of FS Bancorp, Inc. Matthew Mullet also noted, "Our Board of Directors has approved our twenty-second quarterly cash dividend of $0.14 per share for the second quarter."  The dividend will be paid on August 23, 2018, to shareholders of record as of August 8, 2018.

2018 Second Quarter Highlights

  • Total gross loans increased $76.1 million during the quarter, or 9.3%, to $893.8 million at June 30, 2018, compared to $817.7 million at March 31, 2018, and increased $173.5 million, or 24.1%, from $720.3 million at June 30, 2017;
  • Announced the signing of a definitive agreement with Anchor which is projected to provide additional operating leverage as well as access to additional core funding growth;
  • Net income was $4.3 million for both the first and second quarters of 2018, compared to $4.4 million in the second quarter one year ago;
  • Deposits increased $12.6 million, to $870.1 million at June 30, 2018, from $857.5 million at March 31, 2018, and increased $84.4 million, from $785.7 million at June 30, 2017; and
  • Capital levels at the Bank increased to 15.6% for total risk-based capital and 12.2% for Tier 1 leverage capital at June 30, 2018, compared to 13.2% and 10.1% at June 30, 2017, respectively. 

Proposed Acquisition of Anchor Bancorp

On July 17, 2018, the Company entered into a definitive agreement (the "Agreement") with Anchor Bancorp pursuant to which Anchor will be merged with and into the Company, and immediately thereafter Anchor's bank subsidiary, Anchor Bank, will be merged with and into the Bank. Under terms of the Agreement, Anchor shareholders will receive 0.2921 shares of FS Bancorp common stock and $12.40 in cash for each share of Anchor common stock. FS Bancorp will pay aggregate consideration of 725,585 shares of FS Bancorp common stock and $30.8 million in cash or approximately $77.0 million in aggregate, including the value of outstanding shares of Anchor restricted stock.

In the event the Agreement is terminated under certain specified circumstances in connection with a competing transaction, Anchor will be required to pay the Company a termination fee of $2.7 million in cash. The proposed transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the Agreement by the shareholders of Anchor, and is expected to be completed in either the fourth quarter of 2018 or early in the first quarter of 2019.

Balance Sheet and Credit Quality

Total assets increased $88.9 million, or 8.5%, to $1.1 billion at June 30, 2018, compared to $1.0 billion at March 31, 2018, and increased $204.0 million, or 22.0%, from $928.6 million at June 30, 2017.  The quarter over linked quarter increase of $88.9 million in total assets included increases in loans receivable, net of $75.6 million, securities available-for-sale ("AFS") of $7.1 million, loans held for sale ("HFS") of $3.9 million, and Federal Home Loan Bank ("FHLB") stock of $3.4 million, partially offset by a decrease in total cash and cash equivalents of $3.7 million.  The year-to-date ("YTD") over YTD increase of $204.0 million in total assets included increases in loans receivable, net of $172.1 million, securities AFS of $19.5 million, total cash and cash equivalents of $4.2 million, FHLB stock of $3.8 million, servicing rights of $3.5 million, bank owned life insurance ("BOLI") of $3.3 million, and accrued interest receivable of $1.2 million, partially offset by a decrease in loans HFS of $2.1 million, and other assets of $1.4 million.  These increases in assets YTD over YTD were primarily funded by growth in deposits and short-term overnight FHLB borrowings.

                               
LOAN PORTFOLIO                              
(Dollars in thousands) June 30, 2018   March 31, 2018   June 30, 2017  
  Amount   Percent   Amount   Percent   Amount   Percent  
REAL ESTATE LOANS                              
Commercial $  64,599      7.2 $  61,956      7.6 $  57,997      8.0 %
Construction and development    160,521      18.0      143,611      17.5      119,455      16.6  
Home equity    25,460      2.9      23,563      2.9      22,450      3.1  
One-to-four-family (excludes HFS)    177,988      19.9      165,030      20.2      154,826      21.5  
Multi-family    47,695      5.3      52,431      6.4      42,967      6.0  
Total real estate loans    476,263      53.3      446,591      54.6      397,695      55.2  
                               
CONSUMER LOANS                              
Indirect home improvement    147,067      16.5      136,946      16.8      117,926      16.4  
Solar    42,189      4.7      41,581      5.1      38,507      5.3  
Marine    48,591      5.4      38,451      4.7      32,254      4.5  
Other consumer    2,027      0.2      1,951      0.2      2,042      0.3  
Total consumer loans    239,874      26.8      218,929      26.8      190,729      26.5  
                               
COMMERCIAL BUSINESS LOANS                              
Commercial and industrial    110,962      12.4      104,612      12.8      92,713      12.9  
Warehouse lending    66,681      7.5      47,563      5.8      39,165      5.4  
Total commercial business loans    177,643      19.9      152,175      18.6      131,878      18.3  
Total loans receivable, gross    893,780      100.0    817,695      100.0    720,302      100.0 %
                               
Allowance for loan losses    (11,571 )          (11,140 )          (10,143 )      
Deferred costs and fees, net    (2,885 )          (2,760 )          (2,445 )      
Premiums on purchased loans    1,876            1,837            1,388        
Total loans receivable, net $  881,200         $  805,632         $  709,102        
                                     

Loans receivable, net increased $75.6 million to $881.2 million at June 30, 2018, from $805.6 million at March 31, 2018, and increased $172.1 million from $709.1 million at June 30, 2017.  During the second quarter, real estate loans increased $29.7 million, including increases in construction and development loans of $16.9 million, one-to-four-family portfolio loans of $13.0 million, commercial loans of $2.6 million, and home equity loans of $1.9 million, partially offset by a decrease of $4.7 million in multi-family loans. Commercial business loans increased $25.5 million, mostly due to an increase in warehouse lending of $19.1 million and $6.4 million of commercial and industrial loans of which $4.4 million was associated with the purchase of the guaranteed portion of U.S. Department of Agriculture loans.  Consumer loans increased $20.9 million, primarily due to the $10.1 million growth in each of our indirect home improvement and marine loan portfolios. 

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 increased $22.0 million, or 12.9%, to $192.2 million during the quarter ended June 30, 2018, compared to $170.2 million for the preceding quarter, and decreased from $216.8 million for the same quarter one year ago. During the six months ended June 30, 2018, originations of one-to-four-family loans to purchase a home (purchase production) decreased by $3.9 million, or 1.4% with $274.7 million in loan purchase production closing, down from $278.6 million for the six months ended June 30, 2017.  One-to-four-family loan originations for refinance (refinance production) increased $8.5 million, or 10.9% during the six months ended June 30, 2018, with $86.7 million in refinance production closing, up from $78.2 million for the six months ended June 30, 2017.  During the quarter ended June 30, 2018, the Company sold $160.6 million of one-to-four-family loans HFS, compared to sales of $155.0 million for the preceding quarter, and sales of $171.0 million for the same quarter one year ago.

Purchase production was 81.5% of the total one-to-four-family loan originations versus 18.5% for refinance production during the second quarter of 2018, compared to 81.1% in purchase production versus 18.9% in refinance production during the same period in 2017.  The slight increase in purchase production reflects the appreciation in home values in our markets and continued strong home purchase demand in the Pacific Northwest and the slight decrease in refinance production reflects increasing market interest rates.

The allowance for loan losses at June 30, 2018 increased to $11.6 million, or 1.3% of gross loans receivable, excluding loans HFS, compared to $11.1 million, or 1.4% of gross loans receivable, excluding loans HFS at March 31, 2018, and $10.1 million, or 1.4% of gross loans receivable, excluding loans HFS, at June 30, 2017.  Non-performing loans, consisting solely of non-accruing loans, decreased to $627,000 at June 30, 2018, from $720,000 at March 31, 2018, and $754,000 at June 30, 2017.  Substandard loans decreased to $5.8 million at June 30, 2018, compared to $6.0 million at March 31, 2018, and $8.5 million at June 30, 2017.  The $2.7 million decrease in substandard loans from one year ago was primarily due to the sale of a shared national credit of $1.9 million in the third quarter of 2017.  There was no other real estate owned at June 30, 2018, March 31, 2018, or June 30, 2017, respectively.

Total deposits were $870.1 million at June 30, 2018, compared to $857.5 million at March 31, 2018, and $785.7 million at June 30, 2017.  Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) decreased $7.9 million, from March 31, 2018, and increased $53.7 million, from June 30, 2017.  Money market and savings accounts decreased $3.1 million from March 31, 2018, and $47.2 million from June 30, 2017, primarily occurring from increased market interest rate competition and more attractive time deposit rates.  Time deposits increased $23.6 million, from March 31, 2018, and increased $77.9 million, from June 30, 2017. 

Non-retail certificates of deposit which includes brokered certificates of deposit, online certificates of deposit, and public funds increased $3.4 million from March 31, 2018, primarily due to a $9.1 million increase in brokered certificates of deposit, mostly offset by a $5.7 million decrease in online certificates of deposit. The $32.9 million increase from $54.7 million at June 30, 2017 reflects a $41.9 million increase in brokered certificates of deposit, partially offset by an $8.8 million decrease in online certificates of deposit.  Management remains focused on increasing our lower cost relationship-based deposits to fund long-term asset growth.

                                 
DEPOSIT BREAKDOWN                                
(Dollars in thousands)                                
    June 30, 2018   March 31, 2018   June 30, 2017  
    Amount   Percent   Amount   Percent   Amount   Percent  
Noninterest-bearing checking   $  172,848    19.9 $  177,251    20.7 $  156,177    19.9 %
Interest-bearing checking      128,080    14.7      130,002    15.2      91,197    11.6  
Savings      77,631    8.9      76,843    9.0      73,922    9.4  
Money market      210,742    24.2      214,676    25.0      261,658    33.3  
Certificates of deposit less than $100,000      144,755    16.7      129,778    15.1      93,142    11.9  
Certificates of deposit of $100,000 through $250,000      79,131    9.1      73,934    8.6      70,204    8.9  
Certificates of deposit of $250,000 and over      45,417    5.2      41,944    4.9      28,010    3.6  
Escrow accounts related to mortgages serviced      11,509    1.3      13,050    1.5      11,387    1.4  
Total   $  870,113    100.0 $  857,478    100.0 $  785,697    100.0 %
                                 

At June 30, 2018, borrowings increased $67.0 million, or 169.5%, to $106.5 million, from $39.5 million at March 31, 2018, and increased $75.9 million, or 247.3%, from $30.7 million at June 30, 2017. The quarter over linked quarter increase reflects the use of short-term overnight FHLB borrowings to support loan growth.

Total stockholders' equity increased $3.9 million, to $129.4 million at June 30, 2018, from $125.4 million at March 31, 2018, and increased $40.5 million, from $88.8 million at June 30, 2017.  The increase in stockholders' equity from the first quarter of 2018 was primarily due to net income of $4.3 million, partially offset by an increase in accumulated other comprehensive loss, net of tax of $411,000. The $40.5 million increase from the second quarter of 2017 was significantly impacted by net proceeds of $25.6 million received in the third quarter of 2017 due to an issuance and sale of common stock through our underwritten public offering as previously reported. Book value per common share was $35.94 at June 30, 2018, compared to $35.21 at March 31, 2018, and $30.40 at June 30, 2017.

The Bank is well capitalized under the minimum capital requirements established by the FDIC with a total risk-based capital ratio of 15.6%, a Tier 1 leverage capital ratio of 12.2%, and a common equity Tier 1 ("CET1") capital ratio of 14.3% at June 30, 2018.  At June 30, 2017, the total risk-based capital ratio was 13.2%, the Tier 1 leverage capital ratio was 10.1%, and the CET1 capital ratio was 12.0%.

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 15.2%, a Tier 1 leverage capital ratio of 11.9%, and a CET1 ratio of 13.9% at June 30, 2018, compared to 12.5%, 9.5%, and 11.2%, respectively, at June 30, 2017.

Operating Results

Net interest income increased $2.0 million, to $11.9 million for the three months ended June 30, 2018, from $10.0 million for the three months ended June 30, 2017, primarily attributable to a $2.7 million increase in loans receivable interest income, partially offset by a $536,000 increase in deposit interest expense due to continued overall growth in interest-bearing deposits with higher market interest rates paid on new interest-bearing deposits, and a $390,000 increase in interest expense mostly from the use of FHLB borrowings to support loan growth. Net interest income increased $4.5 million, to $23.4 million for the six months ended June 30, 2018, from $18.9 million for the six months ended June 30, 2017, mostly due to a $5.6 million increase in interest income on loans receivable, partially offset by a $927,000 increase in interest expense on deposits and a $431,000 increase in interest expense on borrowings.

The net interest margin ("NIM") decreased five basis points to 4.58% for the three months ended June 30, 2018, from 4.63% for the same period in the prior year, and increased seven basis points to 4.66% for the six months ended June 30, 2018, from 4.59% for the six months ended June 30, 2017.  The quarter over quarter decrease in NIM was driven primarily by growth in higher cost market rate time deposits and increased borrowings to fund loan growth, and the year over year increase in NIM was mostly driven by substantial growth in higher yielding loans.  The average cost of funds increased 31 basis points to 0.89% for the three months ended June 30, 2018, from 0.58% for the three and six months ended June 30, 2017, and increased 21 basis points to 0.79% for the six months ended June 30, 2018.  This increase was primarily related to growth in time deposits and an increase in short-term overnight FHLB borrowings at higher market interest rates.  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, 2018, the provision for loan losses was $450,000 and $800,000, respectively, due to continued loan growth, compared to no provision recorded for the three and six months ended June 30, 2017. During the three months ended June 30, 2018, net charge-offs totaled $19,000, compared to $4,000 during the three months ended June 30, 2017. Net recoveries totaled $15,000 during the six months ended June 30, 2018, compared to net charge-offs of $68,000 during the six months ended June 30, 2017.

Noninterest income decreased $1.3 million, to $5.6 million for the three months ended June 30, 2018, from $7.0 million for the three months ended June 30, 2017.  The decrease during the period reflects a $958,000 reduction in non-recurring gain on sale of mortgage servicing rights, and a $333,000 reduction in service charges and fee income primarily associated with the sale of servicing assets in the second quarter of 2017, and a $237,000 reduction in gain on sale of investment securities, partially offset by a $211,000 increase in gain on sale of loans.  Noninterest income decreased $1.7 million, to $10.6 million for the six months ended June 30, 2018, from $12.4 million for the six months ended June 30, 2017.  The decrease during the period was primarily due to reductions of $958,000 in non-recurring gain on sale of mortgage servicing rights and $535,000 in service charges and fee income as described above, a $166,000 reduction in gain on sale of loans, and a $124,000 reduction in gain on sale of investment securities. 

Noninterest expense increased $1.2 million, to $12.1 million for the three months ended June 30, 2018, from $10.9 million for the three months ended June 30, 2017.  The increase in noninterest expense was the result of a $755,000 increase in salaries and benefits, which included a $401,000 decrease in incentives and commissions due in part to the reduction of homes available for sale in the Pacific Northwest, a $161,000 increase in loan costs, a $98,000 increase in operations expense, an $86,000 increase in data processing, and a $61,000 increase in professional and board fees. Noninterest expense increased $1.9 million, to $23.2 million for the six months ended June 30, 2018, from $21.3 million for the six months ended June 30, 2017.  The increase in noninterest expense was primarily a result of a $1.7 million increase in salaries and benefits, which included a $381,000 increase in incentives and commissions, and a $159,000 increase in data processing.

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 13 bank branches, including the newly opened Silverdale branch on April 12, 2018, 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 pending acquisition of Anchor ("merger")  might not be realized within the expected time frames or at all; governmental approval of the merger may not be obtained or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger; conditions to the closing of the merger may not be satisfied; the shareholders of Anchor may fail to approve the consummation of the merger; 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; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all; secondary market conditions for loans and our ability to 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 2018 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.

Additional Information about the Proposed Acquisition of Anchor

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed transaction, FS Bancorp, Inc. ("FS Bancorp") intends to file a registration statement on Form S-4 with the SEC which will contain a proxy statement/prospectus to be distributed to the shareholders of Anchor in connection with their vote on the merger. Each party will also file other documents regarding the proposed transaction with the SEC. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION REGARDING THE TRANSACTION, SHAREHOLDERS OF ANCHOR ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE REGISTRATION STATEMENT, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The final proxy statement/prospectus will be mailed to shareholders of Anchor. Investors and security holders will be able to obtain the documents free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by FS Bancorp will be available free of charge by accessing FS Bancorp's website at www.FSBWA.com or by writing FS Bancorp at 6920 220th Street SW Mountlake Terrace, WA 98043, Attention: Investor Relations or calling (425) 771-5299, or by writing Anchor at 601 Woodland Square Loop SE, Lacey, WA 98503, Attention: Corporate Secretary or calling (360) 537-1388.

FS Bancorp, Anchor, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from Anchor shareholders in favor of the approval of the merger. Information about the directors and executive officers of FS Bancorp and their ownership of FS Bancorp stock is included in the proxy statement for its 2018 annual meeting of shareholders, which was filed with the SEC on March 28, 2018. Information about the directors and executive officers of Anchor and their ownership of Anchor stock is set forth in the proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on November 9, 2017, and also will be included in the proxy statement/prospectus for the merger. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the registration statement and the proxy statement/prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

 

   
FS BANCORP, INC. AND SUBSIDIARY  
CONSOLIDATED BALANCE SHEETS  
(Dollars in thousands, except share amounts) (Unaudited)  
   
                           
                    Linked   YTD  
  June 30,    March 31,    June 30,    Quarter   Over YTD  
  2018     2018     2017     % Change   % Change  
ASSETS                    
Cash and due from banks $  3,429     $  3,532     $  3,975     (3 )   (14 )  
Interest-bearing deposits at other financial institutions    18,548        22,108        13,827     (16 )   34    
Total cash and cash equivalents    21,977        25,640        17,802     (14 )   23    
Certificates of deposit at other financial institutions    17,611        17,611        18,109         (3 )  
Securities available-for-sale, at fair value    98,465        91,371        78,932     8     25    
Loans held for sale, at fair value    55,191        51,315        57,256     8     (4 )  
Loans receivable, net    881,200        805,632        709,102     9     24    
Accrued interest receivable    4,071        3,693        2,903     10     40    
Premises and equipment, net    16,273        15,798        15,550     3     5    
Federal Home Loan Bank ("FHLB") stock, at cost    7,742        4,308        3,909     80     98    
Bank owned life insurance ("BOLI"), net    13,498        13,410        10,194     1     32    
Servicing rights, held at the lower of cost or fair value    8,352        7,515        4,899     11     70    
Goodwill    2,312        2,312        2,312      —      —    
Core deposit intangible, net    1,164        1,240        1,517     (6 )   (23 )  
Other assets    4,686        3,767        6,097     24     (23 )  
TOTAL ASSETS $  1,132,542     $  1,043,612     $  928,582     9     22    
LIABILITIES                          
Deposits:                          
Noninterest-bearing accounts $  184,357     $  190,301     $  167,564     (3 )   10    
Interest-bearing accounts    685,756        667,177        618,133     3     11    
  Total deposits    870,113        857,478        785,697     1     11    
Borrowings    106,526        39,529        30,669     169     247    
Subordinated note:                          
Principal amount    10,000        10,000        10,000      —      —    
Unamortized debt issuance costs    (145 )      (150 )      (165 )   (3 )   (12 )  
  Total subordinated note less unamortized debt issuance costs    9,855        9,850        9,835            
Deferred tax liability, net    27        137        1,424     (80 )   (98 )  
Other liabilities    16,650        11,176        12,133     49     37    
  Total liabilities    1,003,171        918,170        839,758     9     19    
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;                                    
3,708,660 shares issued and outstanding at June 30, 2018, 3,695,552 at March 31, 2018, and 3,075,168 at June 30, 2017    37        37        31      —     19    
Additional paid-in capital    56,344        55,823        28,208     1     100    
Retained earnings    76,102        72,349        61,920     5     23    
Accumulated other comprehensive loss, net of tax    (2,127 )      (1,716 )      (87 )   24     2,345    
Unearned shares – Employee Stock Ownership Plan ("ESOP")    (985 )      (1,051 )      (1,248 )   (6 )   (21 )  
  Total stockholders' equity    129,371        125,442        88,824     3     46    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $  1,132,542     $  1,043,612     $  928,582     9     22    

 

 
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
                               
  Three Months Ended   Six Months Ended   QTR   YTD
  June 30,    June 30,    Over QTR   Over YTD
  2018   2017   2018   2017   % Change   % Change
INTEREST INCOME                      
Loans receivable, including fees $  13,135   $  10,401   $  25,391   $  19,773   26     28  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions    887      736      1,619      1,397   21     16  
Total interest and dividend income    14,022      11,137      27,010      21,170   26     28  
INTEREST EXPENSE                              
Deposits    1,432      896      2,675      1,748   60     53  
Borrowings    496      106      576      145   368     297  
Subordinated note    169      169      337      336        
Total interest expense    2,097      1,171      3,588      2,229   79     61  
NET INTEREST INCOME    11,925      9,966      23,422      18,941   20     24  
PROVISION FOR LOAN LOSSES    450      —      800      —   100     100  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES    11,475      9,966      22,622      18,941   15     19  
NONINTEREST INCOME                              
Service charges and fee income    670      1,003      1,329      1,864   (33 )   (29 )
Gain on sale of loans    4,671      4,460      8,649      8,815   5     (2 )
Gain on sale of investment securities    —      237      113      237   (100 )   (52 )
Gain on sale of mortgage servicing rights    —      958      —      958   (100 )   (100 )
Earnings on cash surrender value of BOLI    88      71      170      140   24     21  
Other noninterest income    185      228      377      363   (19 )   4  
Total noninterest income    5,614      6,957      10,638      12,377   (19 )   (14 )
NONINTEREST EXPENSE                              
Salaries and benefits    7,671      6,916      14,719      13,034   11     13  
Operations    1,541      1,443      2,901      2,929   7     (1 )
Occupancy    704      645      1,353      1,289   9     5  
Data processing    679      593      1,319      1,160   15     14  
Loan costs    704      543      1,332      1,252   30     6  
Professional and board fees    463      402      907      883   15     3  
Federal Deposit Insurance Corporation ("FDIC") insurance    90      119      131      253   (24 )   (48 )
Marketing and advertising    215      182      364      320   18     14  
Amortization of core deposit intangible    77      100      153      200   (23 )   (24 )
Impairment on servicing rights    —      1      —      1   (100 )   (100 )
Total noninterest expense    12,144      10,944      23,179      21,321   11     9  
INCOME BEFORE PROVISION FOR INCOME TAXES    4,945      5,979      10,081      9,997   (17 )   1  
PROVISION FOR INCOME TAXES    688      1,620      1,502      3,045   (58 )   (51 )
NET INCOME $  4,257   $  4,359   $  8,579   $  6,952   (2 )   23  
Basic earnings per share $  1.19   $  1.50   $  2.40   $  2.40   (21 )    
Diluted earnings per share $  1.13   $  1.41   $  2.28   $  2.25   (20 )   1  


             
KEY FINANCIAL RATIOS AND DATA (Unaudited)            
             
  At or For the Three Months Ended  
  June 30,    March 31,    June 30,   
  2018   2018   2017  
PERFORMANCE RATIOS:            
Return on assets (ratio of net income to average total assets) (1)  1.58  1.72  1.94 %
Return on equity (ratio of net income to average equity) (1)  13.57    14.28    20.62  
Yield on average interest-earning assets  5.38    5.38    5.18  
Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities  0.89    0.69    0.58  
Interest rate spread information – average during period  4.49    4.69    4.59  
Net interest margin (1)  4.58    4.76    4.63  
Operating expense to average total assets  4.50    4.40    4.86  
Average interest-earning assets to average interest-bearing liabilities  136.32    139.62    133.85  
Efficiency ratio (2)  69.24    66.80    64.67  


         
  At or For the Six Months Ended  
  June 30,    June 30,   
  2018   2017  
PERFORMANCE RATIOS:        
Return on assets (ratio of net income to average total assets) (1)  1.65  1.61 %
Return on equity (ratio of net income to average equity) (1)  13.92    16.91  
Yield on average interest-earning assets  5.38    5.13  
Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities  0.79    0.58  
Interest rate spread information – average during period  4.59    4.55  
Net interest margin (1)  4.66    4.59  
Operating expense to average total assets  4.45    4.94  
Average interest-earning assets to average interest-bearing liabilities  137.89    134.70  
Efficiency ratio (2)  68.05    68.08  


             
  June 30,    March 31,    June 30,   
  2018   2018   2017  
ASSET QUALITY RATIOS AND DATA:            
Non-performing assets to total assets at end of period (3)  0.06  0.07  0.08 %
Non-performing loans to total gross loans (4)  0.07    0.09    0.10  
Allowance for loan losses to non-performing loans (4)  1,845.45    1,547.22    1,345.23  
Allowance for loan losses to gross loans receivable, excluding HFS loans  1.29    1.36    1.41  
             
CAPITAL RATIOS, BANK ONLY:            
Tier 1 leverage-based capital  12.23  12.58  10.12 %
Tier 1 risk-based capital  14.32    14.96    11.97  
Total risk-based capital  15.57    16.21    13.23  
Common equity Tier 1 capital 14.32    14.96    11.97  
             
CAPITAL RATIOS, COMPANY ONLY:            
Tier 1 leverage-based capital  11.86  12.20  9.50 %
Total risk-based capital  15.15    15.76    12.49  
Common equity Tier 1 capital  13.90    14.51    11.24  


                   
  At or For the Three Months Ended  
    June 30,    March 31,    June 30,   
  2018   2018   2017  
PER COMMON SHARE DATA:                  
Basic earnings per share $  1.19   $  1.22   $  1.50  
Diluted earnings per share $  1.13   $  1.15   $  1.41  
Weighted average basic shares outstanding    3,583,927      3,556,581      2,903,323  
Weighted average diluted shares outstanding    3,765,724      3,751,537      3,097,628  
Common shares outstanding at period end    3,599,516 (5)    3,563,006 (6)    2,921,681 (7)
Book value per share using common shares outstanding $  35.94   $  35.21   $  30.40  
Tangible book value per share using common shares outstanding (8) $  34.98   $  34.21   $  29.09  

________________
(1) Annualized.
(2) Total noninterest expense as a percentage of net interest income and total other noninterest income.
(3) Non-performing assets consists 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 consists of non-accruing loans.
(5) Common shares were calculated using shares outstanding of 3,708,660 at June 30, 2018, less 18,421 restricted stock shares, and 90,724 unallocated ESOP shares.
(6) Common shares were calculated using shares outstanding of 3,695,552 at March 31, 2018, less 35,342 restricted stock shares, and 97,204 unallocated ESOP shares.
(7) Common shares were calculated using shares outstanding of 3,075,168 at June 30, 2017, less 36,842 restricted stock shares, and 116,645 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 June 30, 
  For the Six Months
Ended June 30, 
  QTR Over
QTR
  YTD
Over YTD
Average Balances   2018   2017   2018   2017   $ Change   $ Change
Assets                                    
Loans receivable, net deferred loan fees (1)   $  899,692   $  720,569   $  872,394   $ 685,524   $  179,123     $  186,870  
Securities available-for-sale, at fair value      96,865      97,289      93,716     95,711      (424 )      (1,995 )
Interest-bearing deposits and certificates of deposit at other financial institutions      41,952      40,930      41,346     47,760      1,022        (6,414 )
FHLB stock, at cost      6,770      4,019      5,097     3,467      2,751        1,630  
Total interest-earning assets      1,045,279      862,807      1,012,553      832,462      182,472        180,091  
Noninterest-earning assets (2)      37,583      39,676      37,419     38,331      (2,093 )      (912 )
Total assets   $  1,082,862   $  902,483   $  1,049,972   $  870,793   $  180,379     $  179,179  
Liabilities and stockholders' equity                                    
Interest-bearing accounts   $  656,363   $  595,071   $  663,173   $ 580,760   $  61,292     $  82,413  
Borrowings      100,546      36,754      61,294     24,752      63,792        36,542  
Subordinated note      9,852      9,832      9,849     9,829      20        20  
Total interest-bearing liabilities      766,761      641,657      734,316      615,341      125,104        118,975  
Noninterest-bearing accounts      179,814      162,919      180,158     159,985      16,895        20,173  
Other noninterest-bearing liabilities      10,451      13,112      11,181     12,553      (2,661 )      (1,372 )
Stockholders' equity      125,836      84,795      124,317     82,914      41,041        41,403  
Total liabilities and stockholders' equity   $  1,082,862   $  902,483   $  1,049,972   $  870,793   $  180,379     $  179,179  

________________
(1) Includes loans held for sale
(2) Includes fixed assets, 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 the tangible book value per share, a non-GAAP financial measure. 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 our bank regulatory agencies, 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.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Further, this non-GAAP financial measure of tangible book value per share should not be considered in isolation or as a substitute for book value per share or total stockholders' equity determined in accordance with GAAP and may not be comparable to a similarly titled measure reported by other companies.

Reconciliation of the GAAP and non-GAAP financial measure is presented below.

                 
  June 30,    March 31,    June 30, 
  2018    2018    2017 
  (Dollars in thousands)
Stockholders' equity $  129,371     $  125,442     $  88,824  
Goodwill and core deposit intangible, net    (3,476 )      (3,552 )      (3,829 )
Tangible common stockholders' equity $  125,895     $  121,890     $  84,995  
                 
Common shares outstanding at end of period    3,599,516        3,563,006        2,921,681  
                 
Common stockholders' equity (book value) per share (GAAP) $  35.94     $  35.21     $  30.40  
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $  34.98     $  34.21     $  29.09  


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

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