FS Bancorp, Inc. Reports Net Income for the Third Quarter of $7.1 Million or $1.58 Per Diluted Share

MOUNTLAKE TERRACE, Wash., Oct. 24, 2019 (GLOBE NEWSWIRE) — FS Bancorp, Inc. (NASDAQ:FSBW)  (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2019 third quarter net income of $7.1 million, or $1.58 per diluted share, compared to $4.1 million, or $1.07 per diluted share for the same period last year.  
“We continue to be pleased with the integration of the Anchor Bancorp acquisition,” stated CEO Joe Adams. “Our financial results reflect the hard work by our combined employees that went into incorporating the two core operating systems, ongoing employee engagement, and partnerships with the communities we serve.”CFO Matthew Mullet noted, “The Board of Directors increased the quarterly cash dividend to $0.20 per share from $0.15 per share payable on November 15, 2019, driven by the combined company’s financial results post acquisition.”2019 Third Quarter HighlightsNet income was $7.1 million for the third quarter of 2019, compared to $4.5 million in the previous quarter, and $4.1 million for the comparable quarter one year ago;Net income for the third quarter of 2019 includes $257,000 of acquisition-related expenses, compared to $1.2 million of acquisition-related expenses in the preceding quarter and $443,000 in the third quarter of 2018;Gain on sale of loans increased $1.0 million, or 28.2%, compared to the previous quarter and $765,000, or 20.0%, compared to the third quarter of 2018;The efficiency ratio improved to 60.1%, reflecting increased revenues and decreased acquisition costs from  the merger with Anchor Bancorp (“Anchor Acquisition”), compared to 72.3% in the previous quarter and 67.0% in the third quarter of 2018;Total gross loans increased $30.1 million, or 2.3%, during the quarter, to $1.33 billion at September 30, 2019, compared to $1.30 billion at June 30, 2019, and increased $365.1 million, or 38.0%, from $961.1 million at September 30, 2018, mainly due to the loans acquired from the Anchor Acquisition;Deposits increased $52.4 million, or 3.9%, during the quarter to $1.39 billion at September 30, 2019, compared to $1.33 billion at June 30, 2019, and increased $442.1 million, or 46.8%, from $944.5 million at September 30, 2018, primarily due to the deposits assumed in the Anchor Acquisition;The Company repurchased 46,562 shares of its common stock during the quarter ended September 30, 2019, at an average price per share of $48.88; andCapital levels at the Bank were 14.5% for total risk-based capital and 11.6% for Tier 1 leverage capital at September 30, 2019.Balance Sheet and Credit QualityTotal assets increased $53.9 million, or 3.3%, to $1.69 billion at September 30, 2019, compared to $1.64 billion at June 30, 2019, and increased $503.7 million, or 42.3%, from $1.19 billion at September 30, 2018.  The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $29.2 million, loans held for sale (“HFS”) of $14.1 million, securities available-for-sale, at fair value of $9.8 million, and total cash and cash equivalents of $3.3 million, partially offset by a decrease in other assets of $2.0 million. The year over year increase in total assets included increases in loans receivable, net of $363.7 million, total cash and cash equivalents of $47.7 million, loans HFS of $25.8 million, bank owned life insurance (“BOLI”) of $21.6 million, premises and equipment, net of $12.5 million, securities available-for-sale, at fair value of $8.7 million, CDs at other financial institutions of $6.9 million, operating lease right-of-use assets of $4.7 million, core deposit intangible, net of $4.6 million, other assets of $3.3 million, and servicing rights of $2.0 million.  The year over year increases were primarily due to the assets acquired in the Anchor Acquisition, along with organic loan growth. Loans receivable, net increased $29.2 million to $1.31 billion for September 30, 2019, from $1.28 billion at June 30, 2019, and increased $363.7 million from $947.6 million at September 30, 2018.  The quarter over linked quarter increase in total real estate loans was $9.0 million, including increases in multi-family of $19.2 million and one-to-four-family portfolio of $4.9 million, partially offset by decreases in construction and development of $13.4 million, commercial real estate of $1.3 million, and home equity of $253,000. Consumer loans increased $14.2 million, primarily due to increases of $12.6 million in indirect home improvement loans and $2.0 million in marine loans. Commercial business loans increased $6.9 million, primarily due to an increase in warehouse lending of $8.1 million, partially offset by a decrease in commercial and industrial loans of $1.2 million. This $1.2 million decrease primarily reflects the sale of four U.S. Department of Agriculture loans in the amount of $8.4 million, with a gain on sale of $122,000.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, were $288.9 million during the quarter ended September 30, 2019, an increase of $80.9 million, or 38.9%, compared to $208.0 million for the preceding quarter, and an increase of $95.9 million, or 49.7% from $193.0 million, for the comparable quarter one year ago. During the nine months ended September 30, 2019, originations through the home lending segment were $638.7 million, an increase of $83.4 million, or 15.0%, compared to $555.3 million for the nine months ended September 30, 2018.  During the quarter ended September 30, 2019, the Company sold $247.3 million of one-to-four-family loans, compared to sales of $173.4 million during the previous quarter, and sales of $174.9 million during the same quarter one year ago. During the nine months ended September 30, 2019, the Company sold $551.6 million of one-to-four-family loans compared to sales of $490.6 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 nine months ended September 30, 2019 and 2018 were as follows:
The allowance for loan losses (“ALLL”) at September 30, 2019 increased to $12.8 million, or 0.96% of gross loans receivable, excluding loans HFS, compared to $12.3 million, or 0.95% of gross loans receivable, excluding loans HFS at June 30, 2019, and $12.0 million, or 1.3% of gross loans receivable, excluding loans HFS, at September 30, 2018.  Non-performing loans increased to $2.2 million at September 30, 2019, from $1.6 million at June 30, 2019, and was unchanged from $2.2 million at September 30, 2018.  Substandard loans increased $898,000 to $7.4 million at September 30, 2019, compared to $6.5 million at June 30, 2019, and was unchanged from the prior year.  The quarter over linked quarter increase was primarily due to an increase in non-performing one-to-four-family loans of $512,000. There were two other real estate owned (“OREO”) properties totaling $178,000 at September 30, 2019, and three OREO properties totaling $254,000 at June 30, 2019, compared to no OREO properties at September 30, 2018.Included in the carrying value of gross loans are net discounts on loans purchased in the Anchor Acquisition. The remaining net discount on loans acquired in the Anchor Acquisition was $3.1 million and $3.7 million, on $223.7 million and $278.4 million of gross loans at September 30, 2019 and June 30, 2019, respectively.Total deposits increased to $1.39 billion at September 30, 2019, compared to $1.33 billion at June 30, 2019, and increased $442.1 million from $944.5 million at September 30, 2018.  Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $18.2 million from June 30, 2019, primarily due to a $16.3 million increase in interest-bearing checking accounts, and increased $172.6 million from September 30, 2018.  Money market and savings accounts increased $8.2 million from June 30, 2019, and increased $54.3 million from September 30, 2018.  Time deposits increased $26.0 million from June 30, 2019, and increased $215.2 million, from September 30, 2018.  Year over year increases were due to deposits assumed in the Anchor Acquisition and organic deposit growth.At September 30, 2019, non-retail CDs which include brokered CDs, online CDs, public deposits CDs, and public funds CDs increased $22.2 million to $141.1 million, compared to $118.9 million at June 30, 2019, mainly due to a $21.7 million increase in brokered deposits. The year over year increase in non-retail CDs of $16.7 million from $124.4 million at September 30, 2018, was driven by a $12.8 million increase in brokered deposits and $3.2 million in online CDs. Management remains focused on increasing our lower cost relationship-based deposits to fund long-term asset growth.At September 30, 2019, borrowings decreased $6.3 million, or 7.6%, to $76.9 million, from $83.2 million at June 30, 2019, and decreased $9.7 million from $86.5 million at September 30, 2018.  The quarter and year to date decreases in borrowings were primarily related to a reduction in FHLB advances due to the growth in deposits.Total stockholders’ equity increased $4.8 million, to $194.3 million at September 30, 2019, from $189.4 million at June 30, 2019, and increased $61.1 million, from $133.1 million at September 30, 2018.  The increase in stockholders’ equity from the second quarter was primarily due to net income of $7.1 million, partially offset by common stock repurchases of $2.3 million.  The Company repurchased 46,562 shares of its common stock during the quarter ended September 30, 2019, at an average price of $48.88 per share. At September 30, 2019, 125,816 shares remained available for repurchase pursuant to our January 2019 Share Repurchase Plan.  Book value per common share was $44.61 at September 30, 2019, compared to $43.18 at June 30, 2019, and $37.10 at September 30, 2018.The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation (“FDIC”) with a total risk-based capital ratio of 14.5%, a Tier 1 leverage capital ratio of 11.6%, and a common equity Tier 1 (“CET1”) capital ratio of 13.6% at September 30, 2019. The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 14.2%, a Tier 1 leverage capital ratio of 11.3%, and a CET1 ratio of 13.3% at September 30, 2019.Operating ResultsNet interest income increased $4.9 million, to $17.7 million for the three months ended September 30, 2019, from $12.9 million for the three months ended September 30, 2018.  This increase was primarily a result of a $6.8 million increase in loans receivable interest income, including additional interest from loans acquired in the Anchor Acquisition, partially offset by a $2.4 million increase in deposit interest expense due to assumed deposits and continued organic growth combined with higher market interest rates. Net interest income increased $16.7 million, to $53.0 million for the nine months ended September 30, 2019, from $36.3 million for the nine months ended September 30, 2018, mostly attributable to a $23.7 million increase in interest income on loans receivable, partially offset by a $7.5 million increase in interest expense on deposits.  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”) decreased one basis point to 4.54% for the three months ended September 30, 2019, from 4.55% for the same period in the prior year, and decreased one basis point to 4.61% for the nine months ended September 30, 2019, from 4.62% for the nine months ended September 30, 2018.  The quarter over quarter NIM was positively impacted by incremental interest accretion on loans acquired in the Anchor Acquisition of 14 basis points. The year over year NIM was positively impacted from incremental interest accretion on loans acquired in the Anchor Acquisition of 17 basis points. The average cost of funds increased 31 basis points to 1.37% for the three months ended September 30, 2019, from 1.06% for the three months ended September 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 47 basis points to 1.36% for the nine months ended September 30, 2019, from 0.89% for the nine months ended September 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 nine months ended September 30, 2019, the provision for loan losses was $573,000 and $2.2 million, compared to $450,000, and $1.3 million for the three and nine months ended September 30, 2018.  During the three months ended September 30, 2019, net charge-offs totaled $147,000, compared to net recoveries of $24,000 for the same period last year.  Net charge-offs totaled $1.8 million during the nine months ended September 30, 2019, compared to net recoveries of $39,000 during the nine months ended September 30, 2018. The increase in net charge-offs during the nine months ended September 30, 2019, was primarily due to the charge-off of a commercial line of credit of $1.2 million in the first quarter, and one commercial business relationship totaling $431,000 in the second quarter of 2019.Noninterest income increased $1.9 million, to $6.7 million, for the three months ended September 30, 2019, from $4.8 million for the three months ended September 30, 2018.  The increase primarily reflects a $903,000 increase in service charges and fee income, mainly driven by deposit accounts assumed in the Anchor Acquisition and deposit growth, and a $765,000 increase in gain on sale of loans primarily due to higher sales volume.  Noninterest income increased $1.9 million, to $17.4 million for the nine months ended September 30, 2019, from $15.4 million for the nine months ended September 30, 2018.  The year over year increase included increases in service charges and fee income of $3.1 million, other noninterest income of $455,000, and earnings on cash surrender value of BOLI of $393,000, partially offset by a decrease of $1.9 million in gain on sale of loans.Noninterest expense increased $2.9 million, to $14.7 million for the three months ended September 30, 2019, from $11.8 million for the three months ended September 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, $826,000 in salaries and benefits, including an increase of $1.1 million in incentives and commissions for the loan production staff associated with strong loan production growth this quarter, $523,000 in data processing, and $360,000 in occupancy expense, partially offset by decreases in acquisition costs of $186,000 and FDIC insurance of $166,000 as a result of a small bank credit awarded by the FDIC recognized during the quarter ended September 30, 2019. The Bank has $174,000 in small bank credits on future assessments remaining at September 30, 2019, which may be recognized in future periods when allowed for by the FDIC upon insurance fund levels being met. Noninterest expense increased $11.6 million to $46.6 million for the nine months ended September 30, 2019, from $35.0 million for the nine months ended September 30, 2018.  The increase during the period was primarily as a result of the Anchor Acquisition and growth in our operations with increases of $3.0 million in salaries and benefits, including an increase of $255,000 in incentives and commissions, $2.9 million in operations, $1.8 million in data processing, $1.4 million in acquisition costs, and $1.3 million in occupancy expense. Acquisition costs were $1.9 million for the nine months ended September 30, 2019, compared to $443,000 for the same period last year, primarily due to the integration of the Anchor Bank core processing platform.  About FS BancorpFS 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