Contact: Joseph C. Adams,
Chief Executive Officer
Matthew D. Mullet,
Chief Financial Officer
(425) 771-5299
www.FSBWA.com
FS Bancorp, Inc. Reports Net Income for the First Quarter of $2.6 million or $0.85 Per Diluted
Share and Announces a 10% Increase in the Quarterly Cash Dividend to $0.11 Per Share
MOUNTLAKE TERRACE, WA – April 26, 2017 - FS Bancorp, Inc. (NASDAQ: FSBW) (the "Company"), the holding company for 1st Security Bank of Washington (the "Bank") today reported 2017 first quarter net income of $2.6 million, or $0.85 per diluted share, compared to net income of $1.7 million, or $0.55 per diluted share, for the same period last year.
"Strong relationship deposit growth in the first quarter provided a stable foundation for our continued loan growth" stated Joe Adams, CEO of FS Bancorp, Inc. "I am also pleased to announce that our Board of Directors has approved our seventeenth quarterly cash dividend which is being increased 10% to $0.11 per share from $0.10 per share." The dividend will be paid on May 25, 2017, to shareholders of record as of May 11, 2017.
2017 First Quarter Highlights
| · | Net income increased to $2.6 million during the first quarter of 2017, compared to $2.5 million for the previous quarter, and $1.7 million for the comparable quarter one year ago; |
| · | Total assets increased $50.0 million, or 6.0%, to $877.9 million at March 31, 2017, compared to $827.9 million at December 31, 2016, and increased $72.5 million, or 9.0%, from $805.4 million at March 31, 2016; |
| · | Total gross loans increased $24.5 million, or 4.0%, to $629.9 million at March 31, 2017, compared to $605.4 million at December 31, 2016, and increased $100.4 million, or 19.0%, from $529.5 million at March 31, 2016; |
| · | Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $14.6 million, or 6.7%, to $233.6 million at March 31, 2017, from $219.0 million at December 31, 2016, and increased $27.2 million, or 13.2%, from $206.5 million at March 31, 2016; |
| · | Overall retail deposits (excluding wholesale and public funds) increased $49.3 million to $696.4 million at March 31, 2017, a 7.6% increase from $647.1 million at December 31, 2016, and an 8.0% increase from $644.7 million at March 31, 2016; |
| · | On January 30, 2017, FS Bancorp, Inc. filed a mixed shelf registration statement for the sale of up to $50 million in securities, including common equity. The shelf registration provides the Company flexibility to raise capital as required to support growth while maintaining sound financial stability. |
FS Bancorp Q1 Earnings
April 26, 2017
Page 2
Balance Sheet and Credit Quality
Total assets increased $50.0 million to $877.9 million at March 31, 2017, compared to $827.9 million at December 31, 2016, and increased $72.5 million from $805.4 million at March 31, 2016. Quarter over sequential quarter increases of $50.0 million in total assets included increases in securities available-for-sale of $25.4 million, loans receivable, net of $24.5 million, and total cash and cash equivalents of $9.6 million, partially offset by a decrease in loans available for sale of $12.5 million. The year over year increase of $72.5 million in total assets included increases in loans receivable, net of $97.7 million, securities available-for-sale of $26.8 million, and certificates of deposit at other financial institutions of $5.2 million, partially offset by a decrease in total cash and cash equivalents of $39.8 million, and loans held for sale of $24.8 million. The increases in assets were primarily funded by cash received from growth in deposits.
LOAN PORTFOLIO | | | | | | |
| (Dollars in thousands) | March 31, 2017 | | December 31, 2016 | | March 31, 2016 | |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent | |
| REAL ESTATE LOANS | | | | | | | | | | | | |
| Commercial | $ 55,483 | | 8.8 | % | $ 55,871 | | 9.2 | % | $ 55,505 | | 10.5 | % |
| Construction and development | 104,276 | | 16.5 | | 94,462 | | 15.6 | | 76,381 | | 14.4 | |
| Home equity | 19,903 | | 3.2 | | 20,081 | | 3.3 | | 15,663 | | 3.0 | |
| One-to-four-family (excludes held for | | | | | | | | | | | | |
| sale) | 141,301 | | 22.4 | | 124,009 | | 20.5 | | 106,141 | | 20.0 | |
| Multi-family | 37,006 | | 5.9 | | 37,527 | | 6.2 | | 30,718 | | 5.8 | |
| Total real estate loans | 357,969 | | 56.8 | | 331,950 | | 54.8 | | 284,408 | | 53.7 | |
| | | | | | | | | | | | | |
| CONSUMER LOANS | | | | | | | | | | | | |
| Indirect home improvement | 109,382 | | 17.3 | | 107,759 | | 17.8 | | 101,895 | | 19.2 | |
| Solar | 37,600 | | 6.0 | | 36,503 | | 6.1 | | 31,585 | | 6.0 | |
| Marine | 29,394 | | 4.7 | | 28,549 | | 4.7 | | 26,254 | | 5.0 | |
| Other consumer | 1,935 | | 0.3 | | 1,915 | | 0.3 | | 2,105 | | 0.4 | |
| Total consumer loans | 178,311 | | 28.3 | | 174,726 | | 28.9 | | 161,839 | | 30.6 | |
| | | | | | | | | | | | | |
| COMMERCIAL BUSINESS LOANS | | | | | | | | | | | | |
| Commercial and industrial | 67,152 | | 10.7 | | 65,841 | | 10.9 | | 54,242 | | 10.2 | |
| Warehouse lending | 26,483 | | 4.2 | | 32,898 | | 5.4 | | 29,030 | | 5.5 | |
| Total commercial business loans | 93,635 | | 14.9 | | 98,739 | | 16.3 | | 83,272 | | 15.7 | |
| Total loans receivable, gross | 629,915 | | 100.0 | % | 605,415 | | 100.0 | % | 529,519 | | 100.0 | % |
| | | | | | | | | | | | | |
| Allowance for loan losses | (10,147) | | | | (10,211) | | | | (8,327) | | | |
| Deferred cost, fees, premiums, and discounts, net | (1,925) | | | | (1,887) | | | | (1,027) | | | |
| Total loans receivable, net | $ 617,843 | | | | $ 593,317 | | | | $ 520,165 | | | |
Loans receivable, net increased $24.5 million to $617.8 million at March 31, 2017, from $593.3 million at December 31, 2016, and increased $97.7 million from $520.2 million at March 31, 2016. The increase in loans receivable, net quarter over sequential quarter was primarily a result of increases in total real estate loans of $26.0 million including an increase in portfolio one-to-four-family loans of $17.3 million, and an increase in construction and development loans of $9.8 million. Quarter over sequential quarter changes in other loan categories included a $5.1 million decrease in commercial business loans associated with our warehouse lending program and a $3.6 million increase in consumer loans.
FS Bancorp Q1 Earnings
One-to-four-family loans originated through the home lending segment which include held for sale, portfolio, fixed seconds, and brokered loans decreased $45.2 million, or 24.1%, to $142.6 million during the quarter ended March 31, 2017, compared to $187.8 million for the preceding quarter, and $147.3 million for the same quarter one year ago. The reduction in originations was a result of reduced refinance activity associated with higher market interest rates, partially offset by increased purchase activity associated with the strong home purchase demand in the Pacific Northwest. The percentage of one-to-four-family loan originations for purchases was 73.6% of the total volume of originations versus 26.4% of volume for refinances during the first quarter of 2017, compared to 63.3% in purchase volume versus 36.7% in refinance volume during the fourth quarter of 2016. During the quarter ended March 31, 2017, the Company sold $136.4 million of one-to-four-family loans, compared to sales of $195.5 million for the preceding quarter, and sales of $118.0 million for the same quarter one year ago.
The allowance for loan losses ("ALLL") at March 31, 2017 decreased to $10.1 million, or 1.6% of gross loans receivable, excluding loans held for sale ("HFS"), compared to $10.2 million, or 1.7% of gross loans receivable, excluding loans HFS, at December 31, 2016, and increased from $8.3 million, or 1.6% of gross loans receivable, excluding loans HFS, at March 31, 2016. Non-performing loans, consisting of non-accrual loans, increased slightly to $790,000 at March 31, 2017, from $721,000 at December 31, 2016, and $570,000 at March 31, 2016. Substandard loans increased to $8.4 million at March 31, 2017, compared to $8.0 million at December 31, 2016, and were $3.2 million at March 31, 2016. The increase in substandard loans from the prior quarter was primarily due to commercial and one-to-four-family loans. The $5.2 million increase in substandard loans from one year ago was primarily due to a $4.6 million commercial business relationship consisting of two lines of credit and one commercial non-real estate loan downgraded as a result of the financial performance of the borrower. There was no other real estate owned ("OREO") at March 31, 2017 or at December 31, 2016, compared to one $320,000 one-to-four-family loan at March 31, 2016.
At March 31, 2017, the Company had a mortgage servicing rights asset ('MSA") with a book value of $8.9 million and a third party reviewed fair market value of $12.6 million. Under regulatory capital guidelines, MSAs are limited to 10% of the Bank's common equity Tier 1 capital. At March 31, 2017, the Bank reported Tier 1 capital of $86.7 million. MSAs in excess of the 10% threshold must be deducted from common equity for regulatory capital purposes. Management is in the preliminary stages of evaluating selling a portion of this asset in order to remain within the maximum 10% limitation. No determination has been made on the amount of MSAs that might be sold or when the sale may occur. Any sale would adversely affect the amount of our servicing fee income.
Total deposits increased $45.4 million, or 6.4%, to $758.0 million at March 31, 2017, compared to $712.6 million at December 31, 2016, and increased $61.3 million, or 8.8%, from $696.7 million at March 31, 2016. Relationship-based transactional deposits increased $14.6 million, or 6.7%, to $233.6 million at March 31, 2017, from $219.0 million at December 31, 2016, and increased $27.2 million, or 13.2%, from $206.5 million at March 31, 2016. Money market and savings accounts increased $27.9 million, or 9.4%, to $325.7 million at March 31, 2017, from $297.8 million at December 31, 2016, and increased $34.6 million, or 11.9%, from $291.1 million at March 31, 2016. Time deposits increased $3.0 million, or 1.5%, to $198.7 million at March 31, 2017, from $195.7 million at December 31, 2016, and decreased $464,000, or 0.2%, from $199.1 million at March 31, 2016. Non-retail certificates of deposit which includes brokered certificates of deposit, online certificates of deposit, and public funds decreased $5.0 million to $55.2 million at March 31, 2017, compared to $60.2 million at December 31, 2016, and increased $10.3 million from $44.9 million at March 31, 2016. Management remains focused on growth in lower cost relationship-based deposits.
FS Bancorp Q1 Earnings
April 26, 2017
Page 4
DEPOSIT BREAKDOWN (Dollars in thousands) | | | | | | | | | | | | | | | | |
| | March 31, 2017 | | | December 31, 2016 | | | March 31, 2016 | |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Noninterest-bearing checking | $ | 150,142 | | | 19.8 | % | | | $ | 143,236 | | | 20.1 | % | | | $ | 150,314 | | | 21.6 | % | |
| Interest-bearing checking | 75,904 | | | 10.0 | | | | 66,119 | | | 9.3 | | | | 48,022 | | | 6.9 | | |
| Savings | 70,863 | | | 9.4 | | | | 54,996 | | | 7.7 | | | | 48,556 | | | 7.0 | | |
| Money market | 254,836 | | | 33.6 | | | | 242,849 | | | 34.1 | | | | 242,516 | | | 34.8 | | |
Certificates of deposit less than $100,000 | 91,554 | | | 12.1 | | | | 93,791 | | | 13.2 | | | | 77,557 | | | 11.1 | | |
Certificates of deposit of $100,000 through $250,000 | 78,985 | | | 10.4 | | | | 74,832 | | | 10.5 | | | | 90,164 | | | 12.9 | | |
| Certificates of deposit of $250,000 and over | 28,139 | | | 3.7 | | | | 27,094 | | | 3.8 | | | | 31,421 | | | 4.5 | | |
Escrow accounts related to mortgages serviced | 7,591 | | | 1.0 | | | | 9,676 | | | 1.3 | | | | 8,129 | | | 1.2 | | |
| Total | $ | 758,014 | | | 100.0 | % | | | $ | 712,593 | | | 100.0 | % | | | $ | 696,679 | | | 100.0 | % | |
At March 31, 2017, borrowings decreased $2.4 million, or 19.0%, to $10.3 million at March 31, 2017, from $12.7 million at both December 31, 2016 and March 31, 2016, as the Company's usage of Federal Home Loan Bank advances was reduced, primarily due to deposit growth in the first quarter.
Total stockholders' equity increased $2.9 million, or 3.6% to $84.0 million at March 31, 2017, from $81.0 million at December 31, 2016, and increased $8.8 million, or 11.8%, from $75.1 million at March 31, 2016. The increase in stockholders' equity from the fourth quarter of 2016 was primarily due to net income of $2.6 million, and an improvement of $106,000 in other comprehensive loss, net of tax, representing a lower level of unrealized losses in our investment portfolio. Book value per common share was $29.21 at March 31, 2017, compared to $28.32 at December 31, 2016, and $25.90 at March 31, 2016.
The Bank is well capitalized under the minimum capital requirements established by the FDIC with a total risk-based capital ratio of 13.8%, a Tier 1 leverage capital ratio of 10.4%, and a common equity Tier 1 ("CET1") capital ratio of 12.5% at March 31, 2017. At March 31, 2016, the total risk-based capital ratio was 14.3%, the Tier 1 leverage capital ratio was 9.9%, and the CET1 capital ratio was 13.0%.
The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 12.9%, a Tier 1 leverage capital ratio of 9.7%, and a CET1 ratio of 11.6% at March 31, 2017, compared to 13.3%, 9.1%, and 12.1% at March 31, 2016, respectively.
FS Bancorp Q1 Earnings
April 26, 2017
Page 5
Operating Results
Net interest income increased $1.2 million, or 14.7%, to $9.0 million for the three months ended March 31, 2017, from $7.8 million for the three months ended March 31, 2016. The change in net interest income was primarily due to a $1.1 million, or 12.6% increase in loans receivable interest income.
The net interest margin ("NIM") increased 35 basis points to 4.54% for the three months ended March 31, 2017, from 4.19% for the same period in the prior year. The increased NIM reflects growth in higher yielding loans, compared to short term investments and cash. Our strategy to grow lending through diversified lending channels may compress or limit future improvements in NIM as real estate and business loans have a lower yield than our consumer loan products. As a percentage, consumer loans to total loans were 28.3% at March 31, 2017, compared to 30.6% at March 31, 2016, reflecting our loan diversification strategy. The average cost of funds increased 11 basis points to 0.73% for the three months ended March 31, 2017, from 0.62% for the three months ended March 31, 2016, as a portion of the deposits from the branch acquisition in the first quarter of 2016 have migrated into interest-bearing deposits. Management remains focused on matching deposit duration with the duration of earning assets where appropriate.
For the three months ended March 31, 2017, no provision for loan losses was recorded, compared to $600,000 for the three months ended March 31, 2016, primarily due to our strong level of ALLL and low level of net charge-offs. These factors combined with steady but moderate loan growth supported our decision not to record a provision for loan losses during the current quarter. During the three months ended March 31, 2017, net charge-offs totaled $64,000 compared to $58,000 during the three months ended March 31, 2016.
Noninterest income increased $1.1 million or 25.4%, to $5.4 million for the three months ended March 31, 2017, from $4.3 million for the three months ended March 31, 2016. The increase during the period was primarily due to a $991,000, or 29.5% increase in gain on sale of loans, and a $164,000, or 23.5% increase in service charges and fee income, offset by a $56,000, or 29.3% decrease in other noninterest income.
Noninterest expense increased $1.5 million, or 16.3%, to $10.4 million for the three months ended March 31, 2017, from $8.9 million for the three months ended March 31, 2016. The increase in noninterest expense was primarily a result of a $1.3 million, or 25.7% increase in salaries and benefits associated with continued Company growth. Other expense categories that increased this quarter included a $272,000 or 62.2% increase in loan costs, a $112,000, or 8.2% increase in operations costs associated with increased loans and deposits, an $87,000, or 18.1% increase in data processing, and a $76,000, or 13.4% increase in occupancy expense. These increases were partially offset by the absence of acquisition costs for the three months ended March 31, 2017, as compared to $385,000 for the three months ended March 31, 2016.
FS Bancorp Q1 Earnings
April 26, 2017
Page 6
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 11 branches 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. The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities home lending markets. The Bank purchased four retail bank branches from Bank of America (two in Clallam and two in Jefferson counties) on January 22, 2016, and the branches opened as 1st Security Bank branches on January 25, 2016.
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: 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, our mortgage banking operations and our warehouse lending 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 and 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 2017 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 Q1 Earnings
April 26, 2017
Page 7
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
| | March 31, | | | December 31, | | | March 31, | |
| | 2017 | | | 2016 | | | 2016 | |
| ASSETS | Unaudited | | Unaudited | | Unaudited |
| Cash and due from banks | $ | 3,879 | | | $ | 3,590 | | | $ | 5,491 | |
| Interest-bearing deposits at other financial institutions | 42,176 | | | 32,866 | | | 80,355 | |
| Total cash and cash equivalents | 46,055 | | | 36,456 | | | 85,846 | |
| Certificates of deposit at other financial institutions | 17,613 | | | 15,248 | | | 12,420 | |
| Securities available-for-sale, at fair value | 107,241 | | | 81,875 | | | 80,458 | |
| Loans held for sale, at fair value | 40,008 | | | 52,553 | | | 64,784 | |
| Loans receivable, net | 617,843 | | | 593,317 | | | 520,165 | |
| Accrued interest receivable | 2,756 | | | 2,524 | | | 2,354 | |
| Premises and equipment, net | 15,842 | | | 16,012 | | | 14,703 | |
| Federal Home Loan Bank ("FHLB") stock, at cost | 3,101 | | | 2,719 | | | 1,320 | |
| Other real estate owned ("OREO") | — | | | — | | | 320 | |
| Bank owned life insurance ("BOLI"), net | 10,123 | | | 10,054 | | | 9,841 | |
| Servicing rights, held at the lower of cost or fair value | 8,939 | | | 8,459 | | | 6,104 | |
| Goodwill | 2,312 | | | 2,312 | | | 2,412 | |
| Core deposit intangible, net | 1,617 | | | 1,717 | | | 2,037 | |
| Other assets | 4,434 | | | 4,680 | | | 2,619 | |
| Total assets | $ | 877,884 | | | $ | 827,926 | | | $ | 805,383 | |
| LIABILITIES | | | | | | | | |
| Deposits: | | | | | | | | |
| Noninterest-bearing accounts | $ | 157,733 | | | $ | 152,913 | | | $ | 158,443 | |
| Interest-bearing accounts | 600,281 | | | 559,680 | | | 538,236 | |
| Total deposits | 758,014 | | | 712,593 | | | 696,679 | |
| Borrowings | 10,269 | | | 12,670 | | | 12,669 | |
| Subordinated note: | | | | | | | | |
| Principal amount | 10,000 | | | 10,000 | | | 10,000 | |
| Unamortized debt issuance costs | (170 | ) | | (175 | ) | | (190 | ) |
| Total subordinated note less unamortized debt issuance costs | 9,830 | | | 9,825 | | | 9,810 | |
| Other liabilities | 15,807 | | | 11,805 | | | 11,101 | |
| Total liabilities | 793,920 | | | 746,893 | | | 730,259 | |
| COMMITMENTS AND CONTINGENCIES | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Preferred stock, $0.01 par value; 5,000,000 shares | | | | | | | | |
| authorized; none issued or outstanding | — | | | — | | | — | |
| Common stock, $0.01 par value; 45,000,000 shares | | | | | | | | |
| authorized; 3,065,266 shares issued and outstanding | | | | | | | | |
| at March 31, 2017, 3,059,503 at December 31, 2016, | | | | | | | | |
and 3,149,296 at March 31, 2016 | 31 | | | 31 | | | 32 | |
| Additional paid-in capital | 27,793 | | | 27,334 | | | 28,591 | |
| Retained earnings | 57,884 | | | 55,584 | | | 47,622 | |
| Accumulated other comprehensive (loss) income, net of tax | (430 | ) | | (536) | | | 450 | |
| Unearned shares - Employee Stock Ownership Plan ("ESOP") | (1,314 | ) | | (1,380 | ) | | (1,571 | ) |
| Total stockholders' equity | 83,964 | | | 81,033 | | | 75,124 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 877,884 | | | $ | 827,926 | | | $ | 805,383 | |
