Exhibit 99.1

Image - Image1.gif

 

FS Bancorp, Inc. Reports Net Income for the Third Quarter of $4.1 Million, Loan Growth of 7.5% and Declares Twenty-Third Consecutive Quarterly Dividend.

 

MOUNTLAKE TERRACE, WA – October 25, 2018 – FS Bancorp, Inc. (NASDAQ:FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2018 third quarter net income of $4.1 million,  compared to $3.5 million for the same period last year with $1.07 per diluted earnings per share for both periods.  

 

CEO Joe Adams noted “We have continued to make progress on the announced merger with Anchor Bancorp (“Anchor”). We have received all required regulatory approvals and Anchor has scheduled a special meeting of its shareholders to vote on the merger on November 13, 2018.  We anticipate closing the transaction shortly after Anchor shareholder approval and other customary closing conditions.”

 

“Quarterly net interest income increased as a result of strong loan growth which helped mitigate margin compression risk from rising funding costs,” stated Matthew Mullet, CFO/COO of the Bank. “We are also pleased to announce that our Board of Directors has approved our twenty-third quarterly cash dividend of $0.14 per share for the third quarter.”  The dividend will be paid on November 21, 2018, to shareholders of record as of November 8, 2018.

 

2018 Third Quarter Highlights

 

·

Net income was $4.1 million for the third quarter of 2018, compared to $4.3 million in the previous quarter, and $3.5 million for the comparable quarter one year ago;

·

Net income adjusted for $443,000 of acquisition costs (adjusted at a 21% tax rate) would have been $4.4 million, or $1.16 per diluted share (See non-GAAP Financial Measure);

·

Total gross loans increased $67.4 million, or 7.5%, during the quarter, to $961.1 million at September 30, 2018, compared to $893.8 million at June 30, 2018, and increased $195.6 million, or 25.6%, from $765.6 million at September 30, 2017;

·

Net interest income increased $1.0 million during the quarter, to $12.9 million at September 30, 2018, compared to $11.9 million in the previous quarter, and increased $1.8 million from the comparable quarter one year ago;

·

Net interest margin was 4.55% for the three months ended September 30, 2018, compared to 4.58% for the three months ended June 30, 2018, and 4.62% for the nine months ended September 30, 2018, compared to 4.63% for the nine months ended September 30, 2017;

·

Deposits increased $74.4 million, to $944.5 million at September 30, 2018, from $870.1 million at June 30, 2018, and increased $104.0 million, from $840.6 million at September 30, 2017;

·

Announced a definitive agreement to acquire Anchor on July 17, 2018, and reported receipt of all regulatory approvals on September 26, 2018.  Subject to the conditions noted above, we anticipate closing the transaction shortly after receiving Anchor shareholder approval; and

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 2

·

Capital levels at the Bank were 15.2% for total risk-based capital and 11.7% for Tier 1 leverage capital at September 30, 2018, compared to 16.1% and 12.5% at September 30, 2017, respectively.

 

Proposed Acquisition of Anchor Bancorp

On July 17, 2018, the Company entered into a definitive agreement (the “Agreement”) with Anchor 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 $73.3 million in aggregate, including the value of outstanding shares of Anchor restricted stock. We announced the receipt of all regulatory approvals on September 26, 2018.

 

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  approval of the Agreement by the shareholders of Anchor at a  shareholder meeting scheduled on November 13, 2018, and is expected to be completed shortly after receiving Anchor shareholder approval.  

 

Balance Sheet and Credit Quality

 

Total assets increased $58.8 million, or 5.2%, to $1.2 billion at September 30, 2018, compared to $1.1 billion at June 30, 2018, and increased $197.4 million, or 19.9%, from $993.9 million at September 30, 2017.  The quarter over linked quarter increase in total assets included increases in loans receivable, net of $66.4 million, partially offset by a decrease in total cash and cash equivalents of $6.8 million and securities available-for-sale (“AFS”) of $1.1 million.  The year over year increase in total assets included increases in loans receivable, net of $193.7 million, securities AFS of $19.3 million, Federal Home Loan Bank (“FHLB”) stock of $4.1 million, servicing rights of $3.4 million, bank owned life insurance (“BOLI”) of $3.3 million, and accrued interest receivable of $1.2 million, partially offset by decreases in total cash and cash equivalents of $16.1 million, loans held for sale (“HFS”) of $10.3 million, and other assets of $1.3 million.  These increases in assets year over year were primarily funded by growth in deposits and short-term overnight FHLB borrowings.

 

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOAN PORTFOLIO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

September 30, 2018

 

June 30, 2018

 

September 30, 2017

 

 

    

Amount

    

Percent

 

Amount

    

Percent

 

Amount

    

Percent

 

REAL ESTATE LOANS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

68,694

 

7.1

%  

$

64,599

 

7.2

%  

$

63,180

 

8.3

%

Construction and development

 

 

191,172

 

19.9

 

 

160,521

 

18.0

 

 

129,407

 

16.9

 

Home equity

 

 

26,085

 

2.7

 

 

25,460

 

2.9

 

 

24,026

 

3.1

 

One-to-four-family (excludes HFS)

 

 

188,333

 

19.6

 

 

177,988

 

19.9

 

 

170,187

 

22.2

 

Multi-family

 

 

48,061

 

5.0

 

 

47,695

 

5.3

 

 

43,408

 

5.7

 

Total real estate loans

 

 

522,345

 

54.3

 

 

476,263

 

53.3

 

 

430,208

 

56.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSUMER LOANS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indirect home improvement

 

 

155,870

 

16.2

 

 

147,067

 

16.5

 

 

124,387

 

16.2

 

Solar

 

 

42,967

 

4.5

 

 

42,189

 

4.7

 

 

40,082

 

5.2

 

Marine

 

 

56,578

 

5.9

 

 

48,591

 

5.4

 

 

35,173

 

4.6

 

Other consumer

 

 

2,059

 

0.2

 

 

2,027

 

0.2

 

 

2,032

 

0.3

 

Total consumer loans

 

 

257,474

 

26.8

 

 

239,874

 

26.8

 

 

201,674

 

26.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMERCIAL BUSINESS LOANS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

113,786

 

11.9

 

 

110,962

 

12.4

 

 

83,221

 

10.9

 

Warehouse lending

 

 

67,540

 

7.0

 

 

66,681

 

7.5

 

 

50,468

 

6.6

 

Total commercial business loans

 

 

181,326

 

18.9

 

 

177,643

 

19.9

 

 

133,689

 

17.5

 

Total loans receivable, gross

 

 

961,145

 

100.0

%  

 

893,780

 

100.0

%  

 

765,571

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(12,045)

 

 

 

 

(11,571)

 

 

 

 

(10,598)

 

 

 

Deferred costs and fees, net

 

 

(3,195)

 

 

 

 

(2,885)

 

 

 

 

(2,585)

 

 

 

Premiums on purchased loans

 

 

1,667

 

 

 

 

1,876

 

 

 

 

1,466

 

 

 

Total loans receivable, net

 

$

947,572

 

 

 

$

881,200

 

 

 

$

753,854

 

 

 

 

Loans receivable, net increased $66.4 million to $947.6 million at September 30, 2018, from $881.2 million at June  30, 2018, and increased $193.7 million from $753.9 million at September 30, 2017.  During the third quarter, real estate loans increased $46.1 million, including increases in construction and development loans of $30.7 million, one-to-four-family portfolio loans of $10.3 million, commercial loans of $4.1 million, and home equity loans of $625,000.  Commercial business loans increased $3.7 million due to an increase in commercial and industrial loans of $2.8 million, and warehouse lending loans of $859,000.  Consumer loans increased $17.6 million, primarily due to increases of  $8.8 million in indirect home improvement loans and $8.0 million in marine loans. 

 

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 $814,000, or 0.4%, to $193.0 million during the quarter ended September 30, 2018, compared to $192.2 million for the preceding quarter, and decreased from $244.1 million for the comparable quarter one year ago. During the nine months ended September 30, 2018, originations of one-to-four-family loans to purchase a home (purchase production) decreased by $27.5 million, or 5.9% with $436.8 million in loan purchase production closing, down from $464.3 million for the nine months ended September 30, 2017.  One-to-four-family loan originations for refinance (refinance production) decreased $20.0 million, or 14.6%  during the nine months ended September 30, 2018, with $116.6 million in refinance production closing, down from $136.6 million for the nine months ended September 30, 2017.  During the quarter

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 4

ended September 30, 2018, the Company sold $174.9 million of one-to-four-family loans HFS, compared to sales of $160.6 million for the preceding quarter, and sales of $204.3 million for the same quarter one year ago.

 

Purchase production was 84.4% of the total one-to-four-family loan originations versus 15.6% for refinance production during the third quarter of 2018, compared to 76.1% in purchase production versus 23.9% in refinance production during the same period in 2017.  The strength in purchase production reflects the appreciation in home values in our markets and continued strong home purchase demand in the Pacific Northwest. The decrease in refinance production reflects increasing market interest rates and management’s focus on purchase production. 

The allowance for loan losses at September 30, 2018 increased to $12.0 million, or 1.3% of gross loans receivable, excluding loans HFS, compared to $11.6 million, or 1.3% of gross loans receivable, excluding loans HFS at June  30, 2018, and $10.6 million, or 1.4% of gross loans receivable, excluding loans HFS, at September 30, 2017.  Non-performing loans, consisting solely of non-accruing loans, increased to $2.2 million at September 30, 2018,  primarily from the addition of one commercial and industrial loan of $1.4 million, from $627,000 at June  30, 2018, and from $1.3 million at September 30, 2017.  Substandard loans increased $1.6 million to $7.4 million at September 30, 2018, primarily due to the $1.4 million non-accruing loan previously mentioned,  and were  $5.8 million at June  30, 2018, and $6.6 million at September 30, 2017.  There was no other real estate owned at September 30, 2018, June  30, 2018, or September 30, 2017, respectively.

 

Total deposits were  $944.5 million at September 30, 2018, compared to $870.1 million at June  30, 2018, and $840.6 million at September 30, 2017.  Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) decreased $7.1 million, from June  30, 2018, and increased $22.6 million, from September 30, 2017.  Money market and savings accounts increased $31.0 million from June  30, 2018, and $10.4 million from September 30, 2017, primarily occurring from higher rates paid on these deposit accounts.  Time deposits increased $50.5 million, from June  30, 2018, and increased $71.0 million, from September 30, 2017, primarily due to promotional rates offered during the quarter and growth in non-retail certificates of deposit. 

 

At September 30, 2018, non-retail certificates of deposit which include brokered certificates of deposit, online certificates of deposit, and public funds certificates of deposit increased $36.8 million to $124.4 million compared to $87.6 million at June  30, 2018, primarily due to  an increase in brokered certificates of deposit. The $24.7 million increase from $99.7 million at September 30, 2017 reflects a $31.2 million increase in brokered certificates of deposit, partially offset by a $6.3 million decrease in online certificates of deposit.  Management remains focused on increasing our lower cost relationship-based deposits to fund long-term asset growth.

 

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEPOSIT BREAKDOWN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

June 30, 2018

 

September 30, 2017

 

 

    

Amount

    

Percent

 

Amount

    

Percent

 

Amount

    

Percent

 

Noninterest-bearing checking

 

$

174,712

 

18.5

%  

$

172,848

 

19.9

%  

$

162,208

 

19.3

%

Interest-bearing checking

 

 

115,059

 

12.2

 

 

128,080

 

14.7

 

 

109,584

 

13.0

 

Savings

 

 

78,785

 

8.3

 

 

77,631

 

8.9

 

 

72,974

 

8.7

 

Money market

 

 

240,626

 

25.5

 

 

210,742

 

24.2

 

 

236,036

 

28.1

 

Certificates of deposit less than $100,000

 

 

188,192

 

19.9

 

 

144,755

 

16.7

 

 

143,169

 

17.0

 

Certificates of deposit of $100,000 through $250,000

 

 

89,075

 

9.4

 

 

79,131

 

9.1

 

 

73,733

 

8.8

 

Certificates of deposit of $250,000 and over

 

 

42,563

 

4.5

 

 

45,417

 

5.2

 

 

31,927

 

3.8

 

Escrow accounts related to mortgages serviced

 

 

15,525

 

1.7

 

 

11,509

 

1.3

 

 

10,947

 

1.3

 

Total

 

$

944,537

 

100.0

%  

$

870,113

 

100.0

%  

$

840,578

 

100.0

%

 

At September 30, 2018, borrowings decreased  $20.0 million, or 18.8%, to $86.5 million, from $106.5 million at June 30, 2018, and increased $76.3 million from $10.3 million at September 30, 2017.  Our borrowings fluctuated between periods to supplement the growth in our deposits funding our loan growth, they were consistent with our asset/liability objectives, and they were repaid as appropriate, primarily through the utilization of lower cost non-retail certificates of deposit.

 

Total stockholders’ equity increased $3.8 million, to $133.1 million at September 30, 2018, from $129.4 million at June 30, 2018, and increased $14.9 million, from $118.2 million at September 30, 2017.  The increase in stockholders’ equity from the second quarter of 2018 was primarily due to net income of $4.1 million, partially offset by an increase in accumulated other comprehensive loss, net of tax of $537,000.    Book value per common share was $36.84 at September 30, 2018, compared to $35.94 at June  30, 2018, and $33.52 at September 30, 2017.

 

The Bank is well capitalized under the minimum capital requirements established by the FDIC with a total risk-based capital ratio of 15.2%, a Tier 1 leverage capital ratio of 11.7%, and a common equity Tier 1 (“CET1”) capital ratio of 14.0% at September 30, 2018.  At September 30, 2017, the total risk-based capital ratio was 16.1%, the Tier 1 leverage capital ratio was 12.5%, and the CET1 capital ratio was 14.9%.

 

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 14.9%, a Tier 1 leverage capital ratio of 11.4%, and a CET1 ratio of 13.6% at September 30, 2018, compared to 15.5%, 11.9%, and 14.2%, respectively, at September 30, 2017.

 

Operating Results

 

Net interest income increased $1.8 million, to $12.9 million for the three months ended September 30, 2018, from $11.0 million for the three months ended September 30, 2017, primarily attributable to a $2.9 million increase in loans receivable interest income, moderately offset by an  $805,000 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  $590,000 increase in interest expense mostly from the use of FHLB borrowings to support loan growth. Net interest income increased $6.3 million, to $36.3 million for the nine months ended September 30, 2018, from $30.0 million for the nine months ended September 30, 2017, mostly due to an  $8.5 million increase in

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 6

interest income on loans receivable and a $544,000 increase in interest and dividends on investment securities, and cash and cash equivalents, partially offset by a $1.7 million increase in interest expense on deposits and a $1.0 million increase in interest expense on borrowings.

 

The net interest margin (“NIM”) decreased 15 basis points to 4.55% for the three months ended September 30, 2018, from 4.70% for the same period in the prior year, and decreased one basis point to 4.62% for the nine months ended September 30, 2018, from 4.63% for the nine months ended September 30, 2017.  The decrease in NIM for both periods was driven primarily by growth in higher cost market rate deposits and increased borrowing costs to fund loan growth.  The average cost of funds increased 44 basis points to 1.06% for the three months ended September 30, 2018, from 0.62% for the three months ended September 30, 2017, and increased 30 basis points to 0.89% for the nine months ended September 30, 2018, from 0.59% for the same period last year.  This increase was predominantly due to growth in time deposits and an increase in short-term overnight FHLB borrowing rates reflecting increases in the targeted federal funds rate.  Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

 

For the three months ended September 30, 2018 and 2017, the provision for loan losses was $450,000.  During the three months ended September 30, 2018, net recoveries totaled $24,000, compared to $5,000 for the same period last year.  The provision for loan losses was $1.3 million for the nine months ended September 30, 2018, compared to $450,000 for the nine months ended September 30, 2017, due primarily to continued loan growth.  During the nine months ended September 30, 2018, net recoveries totaled $39,000, compared to net charge-offs of  $63,000 during the nine months ended September 30, 2017.

 

Noninterest income decreased $1.6 million, to $4.8 million for the three months ended September 30, 2018, from $6.4 million for the three months ended September 30, 2017.  The decrease during the period primarily reflects a $1.2 million reduction in gain on sale of loans, a $163,000 reduction in service charges and fee income as a result of the sale of mortgage servicing rights (“MSR”) in the second quarter of 2017, and a $143,000 reduction in gain on sale of investment securities as there were no sales during the current quarter.  Noninterest income decreased $3.4 million, to $15.4 million for the nine months ended September 30, 2018, from $18.8 million for the nine months ended September 30, 2017.  The decrease was mainly due to a $1.4 million reduction in gain on sale of loans,  no gain on sale of MSR in 2018 compared to $996,000 in 2017, a $698,000 reduction in service charges and fee income as a result of the previously mentioned MSR sale in 2017, and a $267,000 reduction in gain on sale of investment securities. 

 

Noninterest expense increased $249,000, to $11.8 million for the three months ended September 30, 2018, from $11.6 million for the three months ended September 30, 2017.  The increase in noninterest expense was primarily due to acquisition costs related to our pending merger with Anchor of  $443,000,  and increases of $124,000 in loan costs, including appraisals and credit reports, and $94,000 in occupancy expense, partially offset by decreases of  $269,000 in operations expense,  and $101,000 in salaries and benefits, which includes a $956,000 increase in salaries reflecting an increase in full-time employees due to asset growth, partially offset by an $803,000 decrease in incentives and commissions reflecting lower one-to-four-family loan originations as a result of the impact of rising interest rates and a reduction of homes available for sale in the Pacific Northwest. Noninterest expense

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 7

increased $2.1 million, to $35.0 million for the nine months ended September 30, 2018, from $32.9 million for the nine months ended September 30, 2017.  The increase in noninterest expense was primarily due to an increase of  $1.6 million in salaries and benefits reflecting an increase in full-time employees and  a  $422,000 decrease in incentives and commissions, and acquisition costs related to our pending merger with Anchor of  $443,000.  Increases of $206,000 in loan costs, $158,000 in occupancy expense, and $133,000 in data processing expense were mostly offset by decreases of $297,000 in operations expense and $160,000 in premiums for Federal Deposit Insurance Corporation (“FDIC”) insurance.

 

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 12 bank branches, 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 pending acquisition of Anchor (“merger”)  might not be realized within the expected time frames or at all; 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

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 8

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 merger, FS Bancorp, Inc. (“FS Bancorp”) has filed a registration statement on Form S-4 with the SEC that includes a proxy statement of Anchor and a prospectus of FS Bancorp as well as other relevant documents concerning the proposed transaction. Each party will also file other additional documents regarding the proposed transaction with the SEC. Anchor mailed the proxy statement/prospectus to its shareholders subsequent to the registration statement on Form S-4 being declared effective by the SEC. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION REGARDING THE TRANSACTION, SHAREHOLDERS OF ANCHOR ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH SEC,  AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders may obtain a free copy of the proxy statement/prospectus and other filings containing information about FS Bancorp and Anchor 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 is also 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 is also included in 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 Q3 Earnings
October 25, 2018
Page 9

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Linked

 

Year

 

 

 

September 30, 

 

June 30, 

 

September 30, 

 

Quarter

 

Over Year

 

 

    

2018

    

2018

    

2017

    

% Change

    

% Change

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

4,389

 

$

3,429

 

$

3,299

 

28

 

33

 

Interest-bearing deposits at other financial institutions

 

 

10,813

 

 

18,548

 

 

27,996

 

(42)

 

(61)

 

Total cash and cash equivalents

 

 

15,202

 

 

21,977

 

 

31,295

 

(31)

 

(51)

 

Certificates of deposit at other financial institutions

 

 

17,362

 

 

17,611

 

 

18,108

 

(1)

 

(4)

 

Securities available-for-sale, at fair value

 

 

97,374

 

 

98,465

 

 

78,103

 

(1)

 

25

 

Loans held for sale, at fair value

 

 

54,784

 

 

55,191

 

 

65,055

 

(1)

 

(16)

 

Loans receivable, net

 

 

947,572

 

 

881,200

 

 

753,854

 

8

 

26

 

Accrued interest receivable

 

 

4,453

 

 

4,071

 

 

3,217

 

9

 

38

 

Premises and equipment, net

 

 

16,527

 

 

16,273

 

 

15,463

 

2

 

7

 

Federal Home Loan Bank (“FHLB”) stock, at cost

 

 

7,131

 

 

7,742

 

 

3,047

 

(8)

 

134

 

Deferred tax asset, net

 

 

120

 

 

 —

 

 

 —

 

100

 

100

 

Bank owned life insurance (“BOLI”), net

 

 

13,586

 

 

13,498

 

 

10,262

 

1

 

32

 

Servicing rights, held at the lower of cost or fair value

 

 

9,190

 

 

8,352

 

 

5,811

 

10

 

58

 

Goodwill

 

 

2,312

 

 

2,312

 

 

2,312

 

 —

 

 —

 

Core deposit intangible, net

 

 

1,087

 

 

1,164

 

 

1,417

 

(7)

 

(23)

 

Other assets

 

 

4,631

 

 

4,686

 

 

5,947

 

(1)

 

(22)

 

TOTAL ASSETS

 

$

1,191,331

 

$

1,132,542

 

$

993,891

 

5

 

20

 

LIABILITIES

 

 

  

 

 

  

 

 

 

 

 

 

 

 

Deposits:

 

 

  

 

 

  

 

 

 

 

 

 

 

 

Noninterest-bearing accounts

 

$

190,237

 

$

184,357

 

$

166,964

 

3

 

14

 

Interest-bearing accounts

 

 

754,300

 

 

685,756

 

 

673,614

 

10

 

12

 

Total deposits

 

 

944,537

 

 

870,113

 

 

840,578

 

9

 

12

 

Borrowings

 

 

86,526

 

 

106,526

 

 

10,270

 

(19)

 

743

 

Subordinated note:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal amount

 

 

10,000

 

 

10,000

 

 

10,000

 

 —

 

 —

 

Unamortized debt issuance costs

 

 

(140)

 

 

(145)

 

 

(160)

 

(3)

 

(13)

 

Total subordinated note less unamortized debt issuance costs

 

 

9,860

 

 

9,855

 

 

9,840

 

 

 

Deferred tax liability, net

 

 

 —

 

 

27

 

 

1,411

 

(100)

 

(100)

 

Other liabilities

 

 

17,279

 

 

16,650

 

 

13,553

 

4

 

27

 

Total liabilities

 

 

1,058,202

 

 

1,003,171

 

 

875,652

 

5

 

21

 

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; 3,716,460 shares issued and outstanding at September 30, 2018, 3,708,660 at June 30, 2018, and 3,674,902 at September 30, 2017

 

 

37

 

 

37

 

 

37

 

 —

 

 

Additional paid-in capital

 

 

57,027

 

 

56,344

 

 

54,463

 

1

 

5

 

Retained earnings

 

 

79,648

 

 

76,102

 

 

65,049

 

5

 

22

 

Accumulated other comprehensive loss, net of tax

 

 

(2,664)

 

 

(2,127)

 

 

(128)

 

25

 

1,981

 

Unearned shares – Employee Stock Ownership Plan (“ESOP”)

 

 

(919)

 

 

(985)

 

 

(1,182)

 

(7)

 

(22)

 

Total stockholders’ equity

 

 

133,129

 

 

129,371

 

 

118,239

 

3

 

13

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,191,331

 

$

1,132,542

 

$

993,891

 

5

 

20

 

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 10

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

QTR

 

Year 

 

 

September 30, 

 

September 30, 

 

Over QTR

 

Over Year

 

    

2018

    

2017

    

2018

    

2017

    

% Change

    

% Change

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

14,624

 

$

11,715

 

$

40,015

 

$

31,488

 

25

 

27

Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions

 

 

959

 

 

637

 

 

2,578

 

 

2,034

 

51

 

27

Total interest and dividend income

 

 

15,583

 

 

12,352

 

 

42,593

 

 

33,522

 

26

 

27

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,850

 

 

1,045

 

 

4,525

 

 

2,793

 

77

 

62

Borrowings

 

 

704

 

 

114

 

 

1,280

 

 

259

 

518

 

394

Subordinated note

 

 

171

 

 

171

 

 

508

 

 

508

 

 

Total interest expense

 

 

2,725

 

 

1,330

 

 

6,313

 

 

3,560

 

105

 

77

NET INTEREST INCOME

 

 

12,858

 

 

11,022

 

 

36,280

 

 

29,962

 

17

 

21

PROVISION FOR LOAN LOSSES

 

 

450

 

 

450

 

 

1,250

 

 

450

 

 —

 

178

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

12,408

 

 

10,572

 

 

35,030

 

 

29,512

 

17

 

19

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fee income

 

 

716

 

 

879

 

 

2,045

 

 

2,743

 

(19)

 

(25)

Gain on sale of loans

 

 

3,818

 

 

5,025

 

 

12,467

 

 

13,840

 

(24)

 

(10)

Gain on sale of investment securities

 

 

 —

 

 

143

 

 

113

 

 

380

 

(100)

 

(70)

Gain on sale of mortgage servicing rights (“MSR”)

 

 

 —

 

 

38

 

 

 —

 

 

996

 

(100)

 

(100)

Earnings on cash surrender value of BOLI

 

 

88

 

 

68

 

 

258

 

 

208

 

29

 

24

Other noninterest income

 

 

180

 

 

274

 

 

557

 

 

637

 

(34)

 

(13)

Total noninterest income

 

 

4,802

 

 

6,427

 

 

15,440

 

 

18,804

 

(25)

 

(18)

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

7,039

 

 

7,140

 

 

21,759

 

 

20,174

 

(1)

 

8

Operations

 

 

1,308

 

 

1,577

 

 

4,209

 

 

4,506

 

(17)

 

(7)

Occupancy

 

 

744

 

 

650

 

 

2,097

 

 

1,939

 

14

 

8

Data processing

 

 

625

 

 

651

 

 

1,944

 

 

1,811

 

(4)

 

7

Loan costs

 

 

850

 

 

726

 

 

2,183

 

 

1,977

 

17

 

10

Professional and board fees

 

 

414

 

 

378

 

 

1,321

 

 

1,261

 

10

 

5

Federal Deposit Insurance Corporation (“FDIC”) insurance

 

 

137

 

 

175

 

 

268

 

 

428

 

(22)

 

(37)

Marketing and advertising

 

 

201

 

 

192

 

 

564

 

 

512

 

5

 

10

Acquisition costs

 

 

443

 

 

 —

 

 

443

 

 

 —

 

100

 

100

Amortization of core deposit intangible

 

 

77

 

 

100

 

 

230

 

 

300

 

(23)

 

(23)

Impairment on servicing rights

 

 

 —

 

 

 —

 

 

 —

 

 

 1

 

 —

 

(100)

Total noninterest expense

 

 

11,838

 

 

11,589

 

 

35,018

 

 

32,909

 

2

 

6

INCOME BEFORE PROVISION FOR INCOME TAXES

 

 

5,372

 

 

5,410

 

 

15,452

 

 

15,407

 

(1)

 

 —

PROVISION FOR INCOME TAXES

 

 

1,320

 

 

1,956

 

 

2,822

 

 

5,001

 

(33)

 

(44)

NET INCOME

 

$

4,052

 

$

3,454

 

$

12,630

 

$

10,406

 

17

 

21

Basic earnings per share

 

$

1.12

 

$

1.13

 

$

3.52

 

$

3.53

 

(1)

 

Diluted earnings per share

 

$

1.07

 

$

1.07

 

$

3.35

 

$

3.31

 

 —

 

1

 

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 11

 

 

 

 

 

 

 

 

KEY FINANCIAL RATIOS AND DATA (Unaudited)

 

 

 

 

 

 

 

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended

 

 

 

September 30, 

 

June 30, 

 

September 30, 

 

 

    

2018

 

2018

 

2017

 

PERFORMANCE RATIOS:

 

 

 

                

 

 

 

Return on assets (ratio of net income to average total assets) (1)

 

1.38

%  

1.58

%  

1.42

%

Return on equity (ratio of net income to average equity) (1)

 

12.19

 

13.57

 

14.38

 

Yield on average interest-earning assets

 

5.52

 

5.38

 

5.27

 

Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities

 

1.06

 

0.89

 

0.62

 

Interest rate spread information – average during period

 

4.46

 

4.49

 

4.65

 

Net interest margin (1)

 

4.55

 

4.58

 

4.70

 

Operating expense to average total assets

 

4.04

 

4.50

 

4.76

 

Average interest-earning assets to average interest-bearing liabilities

 

134.57

 

136.32

 

135.90

 

Efficiency ratio (2)

 

67.03

 

69.24

 

66.42

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Nine Months Ended

 

 

 

September 30, 

 

 

 

September 30, 

 

 

    

2018

 

 

     

2017

 

PERFORMANCE RATIOS:

 

 

 

 

 

 

 

Return on assets (ratio of net income to average total assets) (1)

 

1.55

%  

                

 

1.54

%

Return on equity (ratio of net income to average equity) (1)

 

13.31

 

 

 

15.97

 

Yield on average interest-earning assets

 

5.43

 

 

 

5.18

 

Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities

 

0.89

 

 

 

0.59

 

Interest rate spread information – average during period

 

4.54

 

 

 

4.59

 

Net interest margin (1)

 

4.62

 

 

 

4.63

 

Operating expense to average total assets

 

4.30

 

 

 

4.87

 

Average interest-earning assets to average interest-bearing liabilities

 

136.68

 

 

 

135.51

 

Efficiency ratio (2)

 

67.71

 

 

 

67.48

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

June 30, 

 

September 30, 

 

 

    

2018

 

2018

 

2017

 

ASSET QUALITY RATIOS AND DATA:

 

 

 

 

 

 

 

Non-performing assets to total assets at end of period (3)

 

0.18

%  

0.06

%  

0.13

%

Non-performing loans to total gross loans (4)

 

0.23

 

0.07

 

0.17

 

Allowance for loan losses to non-performing loans (4)

 

554.56

 

1,845.45

 

838.45

 

Allowance for loan losses to gross loans receivable, excluding HFS loans

 

1.25

 

1.29

 

1.38

 

 

 

 

 

 

 

 

 

CAPITAL RATIOS, BANK ONLY:

 

 

 

 

 

 

 

Tier 1 leverage-based capital

 

11.73

%  

12.23

%  

12.50

%

Tier 1 risk-based capital

 

13.95

 

14.32

 

14.89

 

Total risk-based capital

 

15.20

 

15.57

 

16.14

 

Common equity Tier 1 capital

 

13.95

 

14.32

 

14.89

 

 

 

 

 

 

 

 

 

CAPITAL RATIOS, COMPANY ONLY:

 

 

 

 

 

 

 

Tier 1 leverage-based capital

 

11.43

%  

11.86

%  

11.94

%

Total risk-based capital

 

14.85

 

15.15

 

15.49

 

Common equity Tier 1 capital

 

13.60

 

13.90

 

14.24

 

 

 


 

FS Bancorp Q3 Earnings
October 25, 2018
Page 12

 

 

 

 

 

 

 

 

 

 

 

 

 

At or For the Three Months Ended

 

 

 

 

September 30, 

 

June 30, 

 

September 30, 

 

 

    

2018

     

2018

     

2017

 

PER COMMON SHARE DATA:

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.12

 

$

1.19

 

$

1.13

 

Diluted earnings per share

 

$