MOUNTLAKE TERRACE, Wash., April 24, 2020 (GLOBE NEWSWIRE) — FS Bancorp, Inc. (NASDAQ:FSBW)  (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2020 first quarter net income of $5.2 million, or $1.14 per diluted share, compared to $5.2 million, or $1.15 per diluted share for the same period last year.

“1st Security Bank has been focused on the impact of COVID-19 on the communities we serve and I am proud of the work accomplished to support businesses, employees, and those in our communities during these unprecedented times,” stated CEO Joe Adams. “We also remain focused on prudent capital management and are pleased to announce that our Board of Directors has approved our twenty-ninth consecutive quarterly cash dividend. The quarterly dividend of $0.21 will be paid on May 21, 2020, to shareholders of record as of May 7, 2020.”

Response to the COVID-19 pandemic: 

The Company is following the Federal Housing Finance Agency guidelines for forbearance, foreclosure relief, and late payment reporting for the COVID-19 pandemic on all serviced loans and a modified format for portfolio loans.  As of April 21, 2020, the amount of one-to-four-family loans in our portfolio that we have entered into forbearance agreements with the borrower is $10.8 million, and the amount of consumer loans that we have entered into a skip pay/interest deferral agreements with the borrower is $5.4 million.

The Company participated in the Paycheck Protection Program (“PPP”) and has secured 285 approvals and 280 fundings as of April 21, 2020 for borrowers in the communities we serve.  The Company has funded over $62.0 million in PPP loans to date.

All of our branches are open via drive thru and by appointment; and to enhance health and safety measures, approximately 70% of our staff have been approved to work remotely, where feasible.

2020 First Quarter Highlights

  • Net income was $5.2 million for the first quarter of 2020, compared to $5.9 million in the previous quarter, and $5.2 million for the comparable quarter one year ago. In response to the COVID-19 pandemic and its impact on the economy, the provision for loan loss was significantly increased to $3.7 million for the first quarter of 2020, compared to $647,000 in the previous quarter, and $750,000 for the comparable quarter one year ago;
  • Total gross loans increased $60.0 million during the quarter to $1.41 billion at March 31, 2020, compared to $1.35 billion at December 31, 2019, and $1.30 billion at March 31, 2019.  None of the loan growth funded in the first quarter of 2020 were for loans to facilitate COVID-19 relief;
  • Total deposits increased $53.9 million during the quarter, including an increase of $42.9 million in relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) in line with management’s focus on deposit mix;
  • During the quarter ended March 31, 2020, the Company recognized a one-time $1.5 million net gain on the sale of all shares of its Class B Visa stock;
  • The Company repurchased 136,243 shares of its common stock during the quarter ended March 31, 2020, at an average price per share of $39.30;
  • The Bank was eligible, and elected to opt-in to the new Community Bank Leverage Ratio (“CBLR”) framework for the first quarter of 2020.  At March 31, 2020, the Bank’s Tier 1 leverage capital ratio was 11.3%.

Asset Summary

Total assets increased $134.1 million, or 7.8%, to $1.85 billion at March 31, 2020, compared to $1.71 billion at December 31, 2019, and increased $221.1 million, or 13.6%, from $1.63 billion at March 31, 2019.  The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $56.7 million, loans held for sale (“HFS”) of $45.9 million, securities available-for-sale of $30.4 million and total cash and cash equivalents of $3.1 million, partially offset by decreases in certificates of deposit (“CDs”) at other financial institutions of $3.0 million, other assets of $1.0 million, and servicing rights of $934,000. The year over year increase was primarily due to increases in loans receivable, net of $109.1 million, loans HFS of $70.0 million, securities available-for-sale of $56.7 million, and Federal Home Loan Bank (“FHLB”) stock of $2.8 million, partially offset by decreases in total cash and cash equivalents of $14.2 million and CDs at other financial institutions of $4.1 million. 

                               
(Dollars in thousands) March 31, 2020   December 31, 2019   March 31, 2019  
  Amount   Percent   Amount   Percent   Amount   Percent  
REAL ESTATE LOANS                              
Commercial $ 220,509     15.6 % $ 210,749     15.6 % $ 208,607     16.1 %
Construction and development   168,658     12.0     179,654     13.3     219,229     16.9  
Home equity   37,503     2.7     38,167     2.8     40,714     3.1  
One-to-four-family (excludes HFS)   305,436     21.6     261,539     19.3     261,868     20.2  
Multi-family   130,570     9.2     133,931     9.9     102,997     8.0  
Total real estate loans   862,676     61.1     824,040     60.9     833,415     64.3  
                               
CONSUMER LOANS                              
Indirect home improvement   261,566     18.5     254,691     18.9     219,286     16.9  
Marine   69,473     4.9     67,179     5.0     59,884     4.6  
Other consumer   4,056     0.3     4,340     0.3     5,246     0.4  
Total consumer loans   335,095     23.7     326,210     24.2     284,416     21.9  
                               
COMMERCIAL BUSINESS LOANS                              
Commercial and industrial   149,086     10.6     140,531     10.4     137,325     10.6  
Warehouse lending   65,017     4.6     61,112     4.5     41,914     3.2  
Total commercial business loans   214,103     15.2     201,643     14.9     179,239     13.8  
Total loans receivable, gross   1,411,874     100.0 %   1,351,893     100.0 %   1,297,070     100.0 %
                               
Allowance for loan losses   (16,872 )         (13,229 )         (11,845 )      
Deferred costs and fees, net   (3,425 )         (3,273 )         (2,710 )      
Premiums on purchased loans, net   1,493           955           1,408        
Total loans receivable, net $ 1,393,070         $ 1,336,346         $ 1,283,923        
 

Loans receivable, net increased $56.7 million to $1.39 billion at March 31, 2020, from $1.34 billion at December 31, 2019, and increased $109.1 million from $1.28 billion at March 31, 2019.  The quarter over linked quarter increase in total real estate loans was $38.6 million, including increases in one-to-four-family portfolio loans of $43.9 million and commercial real estate loans of $9.8 million, partially offset by decreases in construction and development loans of $11.0 million and multi-family loans of $3.4 million.  Consumer loans increased $8.9 million, primarily due to an increase of $6.9 million in indirect home improvement loans. Commercial business loans increased $12.5 million, due to increases in commercial and industrial loans of $8.6 million and warehouse lending of $3.9 million.  

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 $285.6 million during the quarter ended March 31, 2020, an increase of $33.0 million, or 13.1%, compared to $252.6 million for the preceding quarter, and an increase of $141.9 million, or 98.8% from $143.7 million, for the comparable quarter one year ago. During the quarter ended March 31, 2020, the Company sold $212.4 million of one-to-four-family loans, compared to sales of $233.8 million during the previous quarter, and sales of $130.9 million during the same quarter one year ago. Refinance activity has increased significantly over the last year in response to decreases in market interest rates.

Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended March 31, 2020 and 2019 were as follows:

                             
(Dollars in thousands) For the Three Months Ended   For the Three Months Ended   Year   Year
  March 31, 2020   March 31, 2019   over Year   over Year
  Amount   Percent   Amount   Percent   $ Change   % Change
Purchase $ 114,652   40.1 % $ 105,518   73.4 % $ 9,134   8.7
Refinance   170,950   59.9     38,155   26.6     132,795   348.0
Total $ 285,602   100.0 % $ 143,673   100.0 % $ 141,929   98.8
 

Liabilities and Equity Summary

Total deposits increased $53.9 million to $1.45 billion at March 31, 2020, compared to $1.39 billion at December 31, 2019, and increased $124.7 million from $1.32 billion at March 31, 2019.  Relationship-based transactional deposits increased $42.9 million from December 31, 2019, primarily due to a $31.0 million increase in interest-bearing checking accounts, a $7.8 million increase in noninterest-bearing checking accounts, and a $4.1 million increase in escrow deposits. The $67.5 million increase from March 31, 2019 was primarily due to a $39.9 million increase in noninterest-bearing checking accounts and a $27.6 million increase in interest-bearing checking accounts.  Money market and savings accounts increased $37.1 million from December 31, 2019, and increased $32.8 million from March 31, 2019.  Time deposits decreased $26.2 million from December 31, 2019, and increased $24.4 million from March 31, 2019. 

At March 31, 2020, non-retail CDs, which include brokered CDs, online CDs, and public funds decreased $17.4 million to $128.8 million, compared to $146.2 million at December 31, 2019, mainly due to an $18.0 million decrease in brokered CDs. The year over year decrease in non-retail CDs of $2.1 million from $130.9 million at March 31, 2019, was the result of a $6.3 million decrease in brokered CDs, primarily offset by increases of $3.4 million in online CDs and $1.0 million in public funds.  Management remains focused on increasing our lower cost relationship-based deposits to fund long-term asset growth.

                               
DEPOSIT BREAKDOWN                              
(Dollars in thousands)                              
  March 31, 2020   December 31, 2019   March 31, 2019  
  Amount   Percent   Amount   Percent   Amount   Percent  
Noninterest-bearing checking $ 267,966   18.5 % $ 260,131   18.7 % $ 228,067   17.3 %
Interest-bearing checking   208,952   14.5     177,972   12.8     181,402   13.7  
Savings   123,052   8.5     118,845   8.5     122,940   9.3  
Money market   303,405   21.0     270,489   19.4     270,718   20.5  
Certificates of deposit less than $100,000   263,787   18.2     277,988   20.0     261,664   19.8  
Certificates of deposit of $100,000 through $250,000   176,322   12.2     181,402   13.0     160,899   12.2  
Certificates of deposit of $250,000 and over   85,185   5.9     92,110   6.6     78,342   5.9  
Escrow accounts related to mortgages serviced   17,600   1.2     13,471   1.0     17,518   1.3  
Total $ 1,446,269   100.0 % $ 1,392,408   100.0 % $ 1,321,550   100.0 %
 

At March 31, 2020, borrowings increased $74.3 million, or 87.5%, to $159.1 million, from $84.9 million at December 31, 2019, and increased $72.3 million, or 83.3% from $86.8 million at March 31, 2019.  The linked quarter and year to date increases in borrowings were primarily related to the use of FHLB advances to supplement deposits to fund higher yielding interest-earning assets.

Management entered into two liability interest rate swap arrangements in the first quarter of 2020 to lock the expense costs associated with $30 million in deposits and $30 million in borrowings.  The average cost of these $60 million in notional pay fixed for four years interest rate swap agreements is 91 basis points for which the Bank will pay a fixed rate of 91 basis points to the interest rate swap counterparty, compared to the quarterly reset of three month LIBOR that will adjust quarterly.  Management will continue to implement processes to match balance sheet funding duration and minimize interest rate risk and costs.

Total stockholders’ equity increased $587,000, to $200.8 million at March 31, 2020, from $200.2 million at December 31, 2019, and increased $14.9 million, from $186.0 million at March 31, 2019.  The increase in stockholders’ equity during the current quarter was primarily due to net income of $5.2 million and $1.0 million of other comprehensive income, net of tax, partially offset by the common stock repurchase of $5.4 million. The Company repurchased 136,243 shares of its common stock during the quarter ended March 31, 2020, at an average price of $39.30 per share.  Book value per common share was $47.29 at March 31, 2020, compared to $45.85 at December 31, 2019, and $42.48 at March 31, 2019.

The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation (“FDIC”) at March 31, 2020 with a Tier 1 leverage capital ratio of 11.3%, compared to the required CBLR of greater than 9.0% and approved CBLR of 8.0% during the COVID-19 pandemic.  The Company’s Tier 1 leverage capital ratio was 11.1% at March 31, 2020.

Credit Quality

The allowance for loan losses (“ALLL”) at March 31, 2020, increased to $16.9 million, or 1.20% of gross loans receivable, excluding loans HFS, compared to $13.2 million, or 0.98% of gross loans receivable, excluding loans HFS at December 31, 2019, and $11.8 million, or 0.91% of gross loans receivable, excluding loans HFS, at March 31, 2019.  Non-performing loans increased to $3.2 million at March 31, 2020, from $3.0 million at both December 31, 2019 and March 31, 2019.  Substandard loans increased $977,000 to $7.6 million at March 31, 2020, compared to $6.7 million at December 31, 2019, and increased $508,000 from $7.1 million at March 31, 2019.  The quarter over linked quarter increase in substandard loans was mostly driven by the down grade of a commercial real estate loan in the amount of $934,000 which was unrelated to the COVID-19 pandemic. 

The year over year increase in substandard loans was primarily due to the addition of two commercial real estate loans; the one mentioned above and another in the amount of $1.1 million during the fourth quarter 2019, partially offset by the payoff of a one-to-four-family loan in the amount of $834,000 and the charge-off of a commercial business relationship totaling $431,000 in the second quarter of 2019.  There was one other real estate owned (“OREO”) property totaling $90,000 at March 31, 2020, compared to two OREO properties totaling $168,000 and $167,000 at December 31, 2019 and March 31, 2019, respectively.

Included in the carrying value of gross loans are net discounts on loans purchased in the Anchor Bancorp Acquisition in November 2018 (“Anchor Acquisition”). The remaining net discount on loans acquired in the Anchor Acquisition was $2.3 million, $2.7 million, and $4.5 million, on $178.2 million, $198.5 million, and $313.7 million of gross loans at March 31, 2020, December 31, 2019, and March 31, 2019, respectively.

Management has initially identified $84.4 million of loans that are in industries potentially impacted by the COVID-19 pandemic and has downgraded the risk classification of these loans as follows: $76.3 million to Watch, $6.8 million to Special Mention, and $1.3 million to Substandard.  These downgrades occurred in the month of March 2020.

Loans downgraded as a result of the COVID-19 pandemic are as follows:

     
(Dollars in thousands)    
Loan types: At March 31, 2020
Hospitality $ 15,578
Transportation   5,111
Food and beverage   12,988
Manufacturing   18,122
Other (including construction and commercial real estate)   32,600
Total $ 84,399
 

Management recognizes the potential impact on all of our customers and will continue to prudently reserve for probable losses, including reserves against our homogenous residential and consumer portfolios. 

The Company is offering payment and financial relief programs for borrowers impacted by the COVID-19 pandemic.  As of April 21, 2020, approximately 240 requests for some type of payment relief on portfolio loans (commercial, residential, and consumer) totaled $71.3 million in outstanding principal balances.  This is in addition to the 285 PPP loans approved as of April 21, 2020.  The primary method of relief is to allow the borrower up to 90-day loan payment deferments, and, on a more limited basis waived interest, late fees or interest only loan payments and suspended foreclosure proceedings.

         
  April 21, 2020
  Number of      
  Loans Under      
(Dollars in thousands) Payment/Relief      
Portfolio loans: Agreements   Amount
Commercial real estate 30   $ 39,330
One-to-four-family (excluding HFS) 21     10,805
Consumer 152     5,367
Commercial business loans 37     15,774
Total portfolio loans 240     71,276
Serviced loans:        
Loans serviced for others 158     47,807
Total loans provided COVID-19 relief 398   $ 119,083
 

Operating Results

Net interest income decreased $216,000, to $17.5 million for the three months ended March 31, 2020, from $17.7 million for the three months ended March 31, 2019.  This decrease was primarily the result of a $369,000 decrease in loans receivable interest income, impacted by the reduction of higher interest rate and recognition of deferred fee income loans, particularly construction and development loans, and the impact of refinances of one-to-four-family loans, partially offset by a $247,000 decrease in borrowing interest expense, primarily due to the reduction of interest rates for the use of FHLB advances and FHLB federal funds.   

The net interest margin (“NIM”) decreased 40 basis points to 4.30% for the three months ended March 31, 2020, from 4.70% for the same period in the prior year.  The decrease in NIM was impacted by lower note rates on recent fixed-rate real estate loan originations and adjustable-rate commercial loans.  The average cost of funds, including noninterest-bearing checking, decreased 14 basis points to 1.19% for the three months ended March 31, 2020, from 1.33% for the three months ended March 31, 2019.  This decrease was predominantly due to repricing CD deposits and lowered borrowing rates. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three months ended March 31, 2020, the provision for loan losses was $3.7 million, compared to $750,000 for the three months ended March 31, 2019, due primarily to the incurred but not yet reported credit deterioration due to the impact of the COVID-19 pandemic, the increase in the loan portfolio due to organic loan growth and net charge-offs.  During the three months ended March 31, 2020, net charge-offs totaled $43,000, compared to net charge-offs of $1.3 million for the same period last year, primarily due to a commercial business loan charge-off of $1.2 million during the three months ended March 31, 2019.

Noninterest income increased $4.3 million, to $8.9 million, for the three months ended March 31, 2020, from $4.6 million for the three months ended March 31, 2019.  The increase during the period primarily reflects a $3.5 million increase in gain on sale of loans, primarily due to higher sales volume reflecting increased loan originations, and a $1.6 million increase in other noninterest income, primarily from the net gain on the one-time sale of Class B Visa stock shares of $1.5 million. 

Noninterest expense increased $1.4 million, to $16.2 million for the three months ended March 31, 2020, from $14.8 million for the three months ended March 31, 2019.  The increase in noninterest expense was primarily as a result of strong loan production growth this quarter with increases of $1.3 million in salaries and benefits, including an increase of $1.6 million in incentives and commissions.  Other increases included $491,000 in impairment of servicing rights and $359,000 in operating expense from lending growth, partially offset by no acquisition costs this quarter compared to $374,000 in acquisition costs in the prior year, and a decrease of $306,000 in data processing, primarily due to the reduction of Anchor Bank core conversion costs completed last June, and a decrease in FDIC insurance of $122,000, primarily as a result of  the FDIC’s small bank credit of $26,000 in the first quarter of 2020, and a decrease in the year over year quarterly assessment rate.

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, one headquarter 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 effect of the COVID-19 pandemic, including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets,  including as a result of the COVID-19 pandemic; the Company’s ability to execute its plans to grow its residential construction lending, mortgage banking, and warehouse lending operations, and the geographic expansion of its indirect home improvement lending; secondary market conditions for loans and the Company’s 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 SEC which are available on its website at www.fsbwa.com and on the SEC’s website at www.sec.gov.  Any of the forward-looking statements that the Company makes 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 incorrect because of the inaccurate assumptions the Company might make, because of the factors illustrated above or because of other factors that cannot be foreseen. Therefore, these factors should be considered in evaluating the forward‑looking statements, and undue reliance should not be placed on such statements. The Company does 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 the Company’s actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company and could negatively affect its 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
  2020   2019   2019   % Change   % Change
ASSETS                  
Cash and due from banks $ 12,928     $ 13,175     $ 9,126     (2 )   42  
Interest-bearing deposits at other financial institutions   35,993       32,603       53,948     10     (33 )
Total cash and cash equivalents   48,921       45,778       63,074     7     (22 )
Certificates of deposit at other financial institutions   17,926       20,902       22,073     (14 )   (19 )
Securities available-for-sale, at fair value   156,466       126,057       99,783     24     57  
Loans held for sale, at fair value   115,632       69,699       45,591     66     154  
Loans receivable, net   1,393,070       1,336,346       1,283,923     4     9  
Accrued interest receivable   6,326       5,908       5,812     7     9  
Premises and equipment, net   28,655       28,770       29,318         (2 )
Operating lease right-of-use   4,692       5,016       4,849     (6 )   (3 )
Federal Home Loan Bank (“FHLB”) stock, at cost   10,921       8,045       8,157     36     34  
Other real estate owned (“OREO”)   90       168       167     (46 )   (46 )
Bank owned life insurance (“BOLI”), net   35,572       35,356       34,700     1     3  
Servicing rights, held at the lower of cost or fair value   10,626       11,560       10,611     (8 )    
Goodwill   2,312       2,312       2,312          
Core deposit intangible, net   5,281       5,457       6,027     (3 )   (12 )
Other assets   10,678       11,682       9,719     (9 )   10  
TOTAL ASSETS $ 1,847,168     $ 1,713,056     $ 1,626,116     8     14  
LIABILITIES                        
Deposits:                        
Noninterest-bearing accounts $ 285,566     $ 273,602     $ 245,585     4     16  
Interest-bearing accounts   1,160,703       1,118,806       1,075,965     4     8  
Total deposits   1,446,269       1,392,408       1,321,550     4     9  
Borrowings   159,114       84,864       86,824     87     83  
Subordinated note:                        
Principal amount   10,000       10,000       10,000          
Unamortized debt issuance costs   (110 )     (115 )     (130 )   (4 )   (15 )
Total subordinated note less unamortized debt issuance costs   9,890       9,885       9,870          
Operating lease liability   4,898       5,214       4,976     (6 )   (2 )
Deferred tax liability, net   2,260       1,971       663     15     241  
Other liabilities   23,908       18,472       16,281     29     47  
Total liabilities   1,646,339       1,512,814       1,440,164     9     14  
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; 4,332,196 shares issued and outstanding at March 31, 2020, 4,459,041 at December 31, 2019, and 4,489,042 at March 31, 2019   43       44       45     (2 )   (4 )
Additional paid-in capital   84,517       89,268       91,742     (5 )   (8 )
Retained earnings   114,957       110,715       95,383     4     21  
Accumulated other comprehensive income (loss), net of tax   1,819       788       (436 )   131     (517 )
Unearned shares – Employee Stock Ownership Plan (“ESOP”)   (507 )     (573 )     (782 )   (12 )   (35 )
Total stockholders’ equity   200,829       200,242       185,952         8  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,847,168     $ 1,713,056     $ 1,626,116     8     14  
 

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)

                         
  Three Months Ended   Qtr   Year
  March 31,   December 31,   March 31,   Over Qtr   Over Year
  2020   2019   2019   % Change   % Change
INTEREST INCOME                        
Loans receivable, including fees $ 20,740   $ 21,029     $ 21,109     (1 )   (2 )
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions   1,209     1,209       1,202         1  
Total interest and dividend income   21,949     22,238       22,311     (1 )   (2 )
INTEREST EXPENSE                        
Deposits   3,807     4,173       3,710     (9 )   3  
Borrowings   497     544       744     (9 )   (33 )
Subordinated note   172     171       168         2  
Total interest expense   4,476     4,888       4,622     (8 )   (3 )
NET INTEREST INCOME   17,473     17,350       17,689     1     (1 )
PROVISION FOR LOAN LOSSES   3,686     647       750     470     391  
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   13,787     16,703       16,939     (17 )   (19 )
NONINTEREST INCOME                        
Service charges and fee income   924     1,423       1,658     (35 )   (44 )
Gain on sale of loans   5,899     3,692       2,397     60     146  
Loss on disposed fixed assets       (26 )         (100 )    
Earnings on cash surrender value of BOLI   216     221       215     (2 )    
Other noninterest income   1,852     343       285     440     550  
Total noninterest income   8,891     5,653       4,555     57     95  
NONINTEREST EXPENSE                        
Salaries and benefits   9,547     9,059       8,243     5     16  
Operations   2,403     2,660       2,044     (10 )   18  
Occupancy   1,109     1,194       1,112     (7 )    
Data processing   980     1,202       1,286     (18 )   (24 )
Loss (gain) on sale of OREO   2     (13 )     (85 )   (115 )   (102 )
OREO expenses       1       4     (100 )   (100 )
Loan costs   500     956       673     (48 )   (26 )
Professional and board fees   681     606       550     12     24  
Federal Deposit Insurance Corporation (“FDIC”) insurance   126           248     100     49  
Marketing and advertising   146     173       135     (16 )   8  
Acquisition costs       (99 )     374     (100 )   (100 )
Amortization of core deposit intangible   176     190       190     (7 )   (7 )
Impairment (recovery) on servicing rights   514     (186 )     23     (376 )   2,135  
Total noninterest expense   16,184     15,743       14,797     3     9  
INCOME BEFORE PROVISION FOR INCOME TAXES   6,494     6,613       6,697     (2 )   (3 )
PROVISION FOR INCOME TAXES   1,327     695       1,505     91     (12 )
NET INCOME $ 5,167   $ 5,918     $ 5,192     (13 )    
Basic earnings per share $ 1.16   $ 1.33     $ 1.19     (13 )   (3 )
Diluted earnings per share $ 1.14   $ 1.30     $ 1.15     (12 )   (1 )
 
             
KEY FINANCIAL RATIOS AND DATA (Unaudited)            
             
  At or For the Three Months Ended  
  March 31,   December 31,   March 31,  
  2020   2019   2019  
PERFORMANCE RATIOS:            
Return on assets (ratio of net income to average total assets) (1) 1.20 % 1.38 % 1.30 %
Return on equity (ratio of net income to average equity) (1) 10.23   11.89   11.46  
Yield on average interest-earning assets 5.40   5.50   5.93  
Interest incurred on liabilities as a percentage of average noninterest-bearing deposits and interest-bearing liabilities 1.19   1.31   1.33  
Interest rate spread information – average during period 4.21   4.19   4.60  
Net interest margin (1) 4.30   4.29   4.70  
Operating expense to average total assets 3.75   3.66   3.72  
Average interest-earning assets to average interest-bearing liabilities 132.50   131.90   129.86  
Efficiency ratio (2) 61.39   68.44   66.52  
             
             
  March 31,   December 31,   March 31,  
  2020   2019   2019  
ASSET QUALITY RATIOS AND DATA:            
Non-performing assets to total assets at end of period (3) 0.18 % 0.19 % 0.19 %
Non-performing loans to total gross loans (4) 0.23   0.22   0.23  
Allowance for loan losses to non-performing loans (4) 514.08   436.17   397.35  
Allowance for loan losses to gross loans receivable, excluding HFS loans 1.20   0.98   0.91  
             
CAPITAL RATIOS, BANK ONLY:            
Tier 1 leverage-based capital 11.26 % 11.56 % 11.01 %
             
CAPITAL RATIOS, COMPANY ONLY:            
Tier 1 leverage-based capital 11.10 % 11.30 % 11.06 %
             
                   
  At or For the Three Months Ended  
  March 31,   December 31,   March 31,  
  2020   2019   2019  
PER COMMON SHARE DATA:                  
Basic earnings per share $ 1.16   $ 1.33   $ 1.19  
Diluted earnings per share $ 1.14   $ 1.30   $ 1.15  
Weighted average basic shares outstanding   4,391,499     4,402,499     4,355,307  
Weighted average diluted shares outstanding   4,478,918     4,504,811     4,493,426  
Common shares outstanding at end of period   4,246,619 (5)   4,366,984 (6)   4,377,638 (7)
Book value per share using common shares outstanding $ 47.29   $ 45.85   $ 42.48  
Tangible book value per share using common shares outstanding (8) $ 45.50   $ 44.08   $ 40.57  
                   
 
(1) Annualized.
(2) Total noninterest expense as a percentage of net interest income and total 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 4,332,196 at March 31, 2020, less 40,215 unvested restricted stock shares, and 45,362 unallocated ESOP shares.
(6) Common shares were calculated using shares outstanding of 4,459,041 at December 31, 2019, less 40,215 unvested restricted stock shares, and 51,842 unallocated ESOP shares.
(7) 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.
(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.
 
                   
(Dollars in thousands)   For the Three Months Ended March 31,   Year Over Year
Average Balances   2020   2019   $ Change
Assets                  
Loans receivable, net deferred loan fees (1)   $ 1,420,227   $ 1,348,418   $ 71,809  
Securities available-for-sale, at fair value     136,260     99,650     36,610  
Interest-bearing deposits and certificates of deposit at other financial institutions     69,763     68,169     1,594  
FHLB stock, at cost     8,259     8,930     (671 )
Total interest-earning assets     1,634,509     1,525,167     109,342  
Noninterest-earning assets     99,526     89,694     9,832  
Total assets   $ 1,734,035   $ 1,614,861   $ 119,174  
Liabilities and stockholders’ equity                  
Interest-bearing accounts   $ 1,131,119   $ 1,054,149   $ 76,970  
Borrowings     92,611     110,445     (17,834 )
Subordinated note     9,887     9,867     20  
Total interest-bearing liabilities     1,233,617     1,174,461     59,156  
Noninterest-bearing accounts     273,442     239,598     33,844  
Other noninterest-bearing liabilities     23,806     17,082     6,724  
Stockholders’ equity     203,170     183,720     19,450  
Total liabilities and stockholders’ equity   $ 1,734,035   $ 1,614,861   $ 119,174  
(1) Includes loans held for sale.
 

Non-GAAP Financial Measures:

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States (“GAAP”), this earnings release contains the tangible book value per share, a non-GAAP financial measure.  Tangible common stockholders’ equity is calculated by excluding intangible assets from stockholders’ equity.  For this financial measure, the Company’s intangible assets are goodwill and core deposit intangible. Tangible book value per share is calculated by dividing tangible common shareholders’ equity by the number of common shares outstanding. The Company believes that this non-GAAP measure is consistent with the capital treatment utilized 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. 

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

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,
(Dollars in thousands, except share and per share amounts) 2020   2019   2019
Stockholders’ equity $ 200,829     $ 200,242     $ 185,952  
Goodwill and core deposit intangible, net   (7,593 )     (7,769 )     (8,339 )
Tangible common stockholders’ equity $ 193,236     $ 192,473     $ 177,613  
                 
Common shares outstanding at end of period   4,246,619       4,366,984       4,377,638  
                 
Common stockholders’ equity (book value) per share (GAAP) $ 47.29     $ 45.85     $ 42.48  
Tangible common stockholders’ equity (tangible book value) per share (non-GAAP) $ 45.50     $ 44.08     $ 40.57  
 
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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