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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

Company Release - 4/25/2019 4:05 PM ET

MOUNTLAKE TERRACE, Wash., April 25, 2019 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: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 

 

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Source: FS Bancorp, Inc.
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