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FS Bancorp, Inc. Reports Net Income for the First Quarter of $2.1 Million or $0.70 Per Diluted Share and Announces Its Ninth Consecutive Quarterly Cash Dividend, With an Increase of $0.01 to $0.07 Per Share

MOUNTLAKE TERRACE, Wash., April 30, 2015 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (Nasdaq:FSBW) ("FS Bancorp" or the "Company"), the holding company for 1st Security Bank of Washington (the "Bank") today reported 2015 first quarter net income of $2.1 million, or $0.70 per diluted share, compared to net income of $875,000, or $0.29 per diluted share, for the same period last year.

The Bank continues to grow its balance sheet through balanced lending initiatives in the communities it serves. "Home lending growth was particularly strong in the first quarter, primarily as a result of the addition of key production employees, low interest rates, and a robust home purchase market," noted Donn Costa, SVP of Home Lending.

Strong profitability was reflected in the $0.70 earnings per diluted common share. "I am pleased to announce that our Board of Directors has approved our ninth quarterly cash dividend which is being increased one cent per share to $0.07 from $0.06," stated Joe Adams, CEO of FS Bancorp. The $0.07 dividend will be paid on May 28, 2015, to shareholders of record as of May 14, 2015.

2015 First Quarter Highlights

  • Net income increased $537,000 or 35.0% to $2.1 million for the first quarter of 2015, compared to $1.5 million for the previous quarter, and $875,000 for the comparable quarter one year ago;
  • The Board increased the dividend to $0.07 from $0.06 in the previous quarter for a payout ratio of 10.9% and an annualized quarter end dividend yield of 1.5% based on the March 31, 2015 closing price of $19.36;
  • Originations of one-to-four-family loans increased to $131.6 million for the first quarter of 2015 from $97.4 million in the previous quarter, and from $37.6 million for the comparable quarter one year ago;
  • Total loans increased $29.2 million, or 7.4% to $423.4 million at March 31, 2015, compared to $394.2 million at December 31, 2014, and $294.3 million at March 31, 2014;
  • Total assets increased $32.0 million, or 6.3% to $541.7 million at March 31, 2015, compared to $509.8 million at December 31, 2014, and $433.2 million at March 31, 2014;
  • Earnings per diluted share increased to $0.70 for the first quarter 2015, compared to $0.52 for the fourth quarter in 2014, and $0.29 for the first quarter of 2014;
  • The efficiency ratio improved to 64.0% for the first quarter of 2015, compared to 74.1% for the fourth quarter of 2014, and 74.7% for the first quarter of 2014;
  • Capital levels at the Bank reflect total risk-based capital of 13.7% and a Tier 1 leverage capital ratio of 11.2% as of March 31, 2015 compared to 14.7% and 11.2% as of December 31, 2014, respectively.

Balance Sheet and Credit Quality

Total assets increased to $541.7 million at March 31, 2015, compared to $509.8 million at December 31, 2014, and $433.2 million at March 31, 2014. The $32.0 million increase in total assets from December 31, 2014 to March 31, 2015 was primarily due to increases in loans receivable, net of $28.9 million, an increase in loans held for sale of $9.0 million, and was partially offset by a decrease in securities available-for-sale of $4.2 million, and cash and cash equivalents of $3.7 million. The increase in assets was funded by increases in deposits and borrowings. The $108.5 million increase in total assets at March 31, 2015, compared to March 31, 2014, was primarily due to increases in loans receivable, net of $127.5 million, and loans held for sale of $23.4 million, partially offset by a decrease in securities available-for-sale of $27.5 million, and total cash and cash equivalents of $16.9 million.

LOAN PORTFOLIO
(Dollars in thousands)
March 31, 2015 December 31, 2014 March 31, 2014
Amount Percent Amount Percent Amount Percent
REAL ESTATE LOANS
Commercial $ 45,701 10.8% $ 42,970 10.9% $ 33,469 11.4%
Construction and development 70,639 16.6 57,813 14.7 39,394 13.4
Home equity 15,198 3.6 15,737 4.0 15,178 5.1
One-to-four-family (held for sale excluded) 54,985 13.0 46,801 11.9 24,750 8.4
Multi-family 16,841 4.0 16,201 4.1 6,509 2.2
Total real estate loans 203,364 48.0 179,522 45.6 119,300 40.5
CONSUMER LOANS
Indirect home improvement 99,769 23.6 99,304 25.2 91,558 31.1
Solar 21,535 5.1 18,162 4.6 9,745 3.3
Marine 17,759 4.2 16,713 4.2 12,719 4.3
Automobile 616 0.1 674 0.2 1,063 0.4
Recreational 401 0.1 441 0.1 523 0.2
Home improvement 313 0.1 329 0.1 442 0.2
Other 1,056 0.2 1,184 0.3 1,211 0.4
Total consumer loans 141,449 33.4 136,807 34.7 117,261 39.9
COMMERCIAL BUSINESS LOANS 78,632 18.6 77,881 19.7 57,740 19.6
Total loans 423,445 100.0% 394,210 100.0% 294,301 100.0%
Allowance for loan losses (6,405) (6,090) (5,243)
Deferred cost, fees, and discounts, net (970) (946) (532)
Total loans receivable, net $ 416,070 $ 387,174 $ 288,526

Loans receivable, net increased $28.9 million to $416.1 million at March 31, 2015, from $387.2 million at December 31, 2014, and increased $127.5 million from $288.5 million at March 31, 2014. Total real estate loans increased $23.8 million quarter over quarter including increases in construction and development of $12.8 million, one-to-four-family of $8.2 million, and commercial real estate loans of $2.7 million. Quarter over quarter changes in other loan categories included a $4.6 million increase in consumer loans, and a $751,000 increase in commercial business loans.

One-to-four-family originations of loans held for sale, including loans brokered to other institutions, increased $34.2 million, or 35.0%, to $131.6 million during the quarter ended March 31, 2015, compared to $97.4 million for the preceding quarter, and $37.6 million for the same quarter one year ago. The increase in originations was attributed to key production employees hired in the second half of 2014, and the continued low interest rate environment during the first quarter. The percentage of one-to-four-family mortgage loan originations for purchases was 52.7% of the total volume of originations versus 47.3% of volume for refinances during the first quarter of 2015, compared to 68.1% in purchase volume versus 31.9% in refinance volume for the fourth quarter of 2014. During the quarter ended March 31, 2015, the Company sold $111.7 million of one-to-four-family mortgage loans compared to sales of $90.2 million for the preceding quarter, and sales of $33.4 million for the same quarter one year ago.

The allowance for loan losses ("ALLL") at March 31, 2015 was $6.4 million, or 1.5% of gross loans receivable, compared to $6.1 million, or 1.5% of gross loans receivable as of December 31, 2014, and $5.2 million, or 1.8% of gross loans receivable at March 31, 2014. Non-performing loans, consisting of non-accrual loans, increased to $1.1 million at March 31, 2015, from $433,000 at both December 31, 2014, and March 31, 2014. Substandard loans increased to $4.5 million at March 31, 2015, compared to $2.2 million at December 31, 2014, and increased from $1.0 million at March 31, 2014. The increase from one year ago was primarily due to the downgrade of three commercial real estate loans and one commercial business loan, and the increase from the prior quarter was due to the downgrade of one commercial business loan. These loans were downgraded as a result of the financial performance by the borrowers. There was no other real estate owned ("OREO") at March 31, 2015, or at December 31, 2014, compared to $535,000 at March 31, 2014. Additionally, at March 31, 2015, the Company had $777,000 in restructured loans, all of which were performing in accordance with their modified payment terms.

Total deposits increased $15.9 million, or 3.8% to $436.3 million at March 31, 2015, from $420.4 million at December 31, 2014, and increased $86.0 million, or 24.5%, from $350.3 million at March 31, 2014. Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $1.8 million, or 2.1%, to $88.1 million as of March 31, 2015, from $86.3 million at December 31, 2014, and increased $12.6 million, or 16.7%, from $75.5 million at March 31, 2014. Money market and savings accounts increased $3.7 million, or 2.1%, to $177.9 million at March 31, 2015, from $174.2 million at December 31, 2014, and increased $35.1 million, or 24.6%, from $142.8 million at March 31, 2014. Time deposits increased $10.4 million, or 6.5% to $170.3 million at March 31, 2015, from $160.0 million at December 31, 2014, and increased $38.2 million, or 29.0%, from $132.1 million at the same period last year. Non-retail deposits which include $26.7 million of brokered certificates of deposit, $15.4 million of online certificates of deposit, and $1.7 million of public funds, increased to $43.7 million as of March 31, 2015, compared to $36.4 million and $24.1 million at December 31, 2014, and March 31, 2014, respectively. Management utilizes the wholesale market deposits to mitigate interest rate risk exposure where appropriate.

DEPOSIT BREAKDOWN
(Dollars in thousands)
March 31, 2015 December 31, 2014 March 31, 2014
Amount Percent Amount Percent Amount Percent
Noninterest-bearing checking $ 54,004 12.4% $ 53,743 12.8% $ 45,031 12.8%
Interest-bearing checking 30,011 6.9 29,585 7.0 28,119 8.0
Savings 23,391 5.4 21,560 5.1 16,682 4.8
Money market 154,502 35.4 152,611 36.3 126,081 36.0
Certificates of deposits of less than $100,000 60,271 13.8 52,323 12.4 45,611 13.0
Certificates of deposits of $100,000 through $250,000 74,797 17.1 74,008 17.6 53,380 15.2
Certificates of deposits of more than $250,000 35,267 8.1 33,623 8.0 33,096 9.5
Escrows 4,077 0.9 2,991 0.8 2,336 0.7
Total $ 436,320 100.0% $ 420,444 100.0% $ 350,336 100.0%

Borrowings increased $13.4 million, or 78.7%, to $30.4 million as of March 31, 2015, from $17.0 million at December 31, 2014, primarily to fund held for sale home lending growth during the first quarter of 2015.

Total equity increased $2.4 million, or 3.6%, to $68.2 million at March 31, 2015, from $65.8 million at December 31, 2014. The increase in equity from the fourth quarter of 2014 was predominantly a result of net income of $2.1 million, and an increase of $172,000 in other comprehensive income for the quarter ended March 31, 2015.

Book value per common share was $23.23 as of March 31, 2015, compared to $22.48 as of December 31, 2014, and $20.88 as of March 31, 2014.

The Bank is well capitalized under the minimum capital requirements established by the FDIC with a total risk-based capital ratio of 13.7%, a Tier 1 leverage capital ratio of 11.2%, and a common equity Tier 1 ("CET1") capital ratio of 12.5% at March 31, 2015. At March 31, 2014, the total risk-based capital ratio was 16.4%, and the Tier 1 leverage capital ratio was 12.2%. The CET1 capital ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2015.

The Company has exceeded all regulatory capital requirements with a total risk-based capital ratio of 15.9%, a Tier 1 leverage capital ratio of 12.9%, and a CET1 ratio of 14.6% at March 31, 2015, compared to 19.9% and 15.1% at March 31, 2014, respectively. The CET1 capital ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2015.

Operating Results

Net interest income increased $1.4 million, or 27.8%, to $6.3 million for the three months ended March 31, 2015, from $4.9 million for the three months ended March 31, 2014.

The net interest margin ("NIM") increased 11 basis points to 5.07% for the three months ended March 31, 2015, from 4.96% for the same period in the prior year. The increased NIM reflects growth in higher yielding loans, compared to investments and cash as a part of our loan diversification strategy. As a percentage, consumer loans to total loans were 33.4% as of March 31, 2015, compared to 39.8% as of March 31, 2014. The average cost of funds increased four basis points to 0.73% for the three months ended March 31, 2015, from 0.69% for the three months ended March 31, 2014. Deposit costs increased due to interest-bearing deposit promotions which generated additional funds for loan growth.

The provision for loan losses increased $150,000, or 33.3%, to $600,000 for the three months ended March 31, 2015, compared to $450,000 at March 31, 2014, primarily due to the growth in construction and development loans of $31.2 million, commercial loans of $12.2 million, and the $3.5 million increase in substandard commercial loans. Non-performing loans were $1.1 million, or 0.3% of total gross loans at March 31, 2015, compared to $433,000 or 0.2% of total gross loans at March 31, 2014. During the three months ended March 31, 2015, net charge-offs were $284,000 compared to $298,000 during the three months ended March 31, 2014.

Noninterest income increased $2.0 million, or 99.6%, to $4.1 million for the three months ended March 31, 2015, from $2.0 million for the three months ended March 31, 2014. The increase during the period was primarily due to a $1.8 million, or 120.6% increase in gain on sale of one-to-four-family mortgage loans to investors, including Fannie Mae, Freddie Mac, and Ginnie Mae, with servicing rights retained for the purpose of developing these customer relationships. The increase in noninterest income was the primary reason for the improvement in the efficiency ratio to 64.0% in the current quarter, from 74.7% one year ago.

Noninterest expense increased $1.4 million, or 27.5%, to $6.6 million for the three months ended March 31, 2015, from $5.2 million for the three months ended March 31, 2014. Changes in noninterest expense included an $827,000, or 26.5% increase in salaries and benefits, including commissions and incentives for the loan production staff, as well as compensation associated with the equity incentive plan, a $417,000, or 76.4% increase in operations costs as a result of the significant $275,000 decrease recognized in the prior year's first quarter for the Washington State B&O excise tax refund, a $72,000, or 25.1% increase in data processing associated with the continued investment in increasing the lending and deposit franchise, a $63,000, or 20.7% increase in professional and board fees due to costs associated with the equity incentive plan for the Board of Directors, and a $36,000, or 9.0% increase in occupancy expense.

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 seven branches in suburban communities in the greater Puget Sound area. The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities home lending markets.

Disclaimer

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated, including, but not limited to: general economic conditions, either nationally or in our market area, that are worse than expected; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area; increases in premiums for deposit insurance; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; increased competitive pressures among financial services companies; 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; secondary market conditions for loans and our ability to sell loans in the secondary market; our ability to attract and retain deposits; our ability to control operating costs and expenses; changes in consumer spending, borrowing and savings habits; our ability to successfully manage our growth; legislative or regulatory changes that adversely affect our business or increase capital requirements, including changes related to Basel III; the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing regulations, changes in regulation policies and principles, or the interpretation of regulatory capital or other rules; adverse changes in the securities markets; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board; costs and effects of litigation, including settlements and judgments and inability of key third-party vendors to perform their obligations to us; and other economic, competitive, governmental, regulatory and technical factors affecting our operations, pricing, products and services and other risks described in the Company's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2014.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. We caution readers not to place undue reliance on any forward-looking 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 fiscal 2015 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company's operations and stock price performance.

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
March 31, December 31, March 31,
2015 2014 2014
Unaudited Unaudited Unaudited
ASSETS
Cash and due from banks $ 2,436 $ 10,799 $ 1,972
Interest-bearing deposits at other financial institutions 13,966 9,299 31,336
Securities available-for-sale, at fair value 44,547 48,744 72,092
Loans held for sale, at fair value 34,968 25,983 11,592
Loans receivable, net 416,070 387,174 288,526
Accrued interest receivable 1,813 1,558 1,430
Premises and equipment, net 13,444 13,584 13,764
Federal Home Loan Bank stock, at cost 1,942 1,650 1,686
Other real estate owned ("OREO") 535
Bank owned life insurance ("BOLI") 6,602 6,556 6,414
Servicing rights, held at the lower of cost or fair value 3,670 3,061 2,134
Other assets 2,267 1,346 1,715
TOTAL ASSETS $ 541,725 $ 509,754 $ 433,196
LIABILITIES
Deposits
Noninterest-bearing accounts $ 58,081 $ 56,734 $ 47,367
Interest-bearing accounts 378,239 363,710 302,969
Total deposits 436,320 420,444 350,336
Borrowings 30,433 17,034 16,345
Other liabilities 6,773 6,440 3,047
Total liabilities 473,526 443,918 369,728
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; 3,235,625 shares issued and outstanding at March 31, 2015, and December 31, 2014, and 3,240,125 at March 31, 2014 32 32 32
Additional paid-in capital 29,689 29,450 30,106
Retained earnings 40,011 38,125 35,938
Accumulated other comprehensive income (loss) 289 117 (541)
Unearned shares - Employee Stock Ownership Plan ("ESOP") (1,822) (1,888) (2,067)
Total stockholders' equity 68,199 65,836 63,468
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 541,725 $ 509,754 $ 433,196
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
2015 2014
Unaudited Unaudited
INTEREST INCOME
Loans receivable and fees $ 6,819 $ 5,181
Interest and dividends on investment securities, cash and cash equivalents, and interest-bearing deposits at other financial institutions 264 330
Total interest and dividend income 7,083 5,511
INTEREST EXPENSE
Deposits 748 550
Borrowings 67 58
Total interest expense 815 608
NET INTEREST INCOME 6,268 4,903
PROVISION FOR LOAN LOSSES 600 450
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,668 4,453
NONINTEREST INCOME
Service charges and fee income 425 398
Gain on sale of loans 3,326 1,508
Gain on sale of investment securities 76
Earnings on cash surrender value of BOLI 47 45
Other noninterest income 197 89
Total noninterest income 4,071 2,040
NONINTEREST EXPENSE
Salaries and benefits 3,949 3,122
Operations 963 546
Occupancy 434 398
Data processing 359 287
OREO fair value impairments, net of loss on sales 32
OREO expense 21
Loan costs 333 305
Professional and board fees 367 304
FDIC insurance 79 63
Marketing and advertising 130 107
Recovery of loss on servicing rights (1)
Total noninterest expense 6,613 5,185
INCOME BEFORE PROVISION FOR INCOME TAXES 3,126 1,308
PROVISION FOR INCOME TAXES 1,056 433
NET INCOME $ 2,070 $ 875
Basic earnings per share $ 0.71 $ 0.29
Diluted earnings per share $ 0.70 $ 0.29
KEY FINANCIAL RATIOS AND DATA (Unaudited)
(Dollars in thousands, except per share amounts) At or For the Three Months Ended
March 31, December 31, March 31,
2015 2014 2014
PERFORMANCE RATIOS:
Return on assets (ratio of net income to average total assets) (1) 1.60% 1.22% 0.84%
Return on equity (ratio of net income to average equity) (1) 12.69 9.46 5.67
Yield on average interest-earning assets 5.73 5.69 5.57
Interest incurred on liabilities as a percentage of average noninterest bearing deposits and interest-bearing liabilities 0.73 0.63 0.69
Interest rate spread information – average during period 5.00 5.06 4.88
Net interest margin (1) 5.07 5.12 4.96
Operating expense to average total assets 5.10 5.49 4.97
Average interest-earning assets to average interest-bearing liabilities 126.94 126.98 129.37
Efficiency ratio (2) 63.97 74.08 74.68
ASSET QUALITY RATIOS AND DATA:
Non-performing assets to total assets at end of period (3) 0.20% 0.08% 0.22%
Non-performing loans to total gross loans (4) 0.25 0.11 0.15
Allowance for loan losses to non-performing loans (4) 605.96 1,406.47 1,210.85
Allowance for loan losses to gross loans receivable 1.51 1.54 1.78
CAPITAL RATIOS, BANK ONLY:
Tier 1 leverage capital 11.20% 11.17% 12.24%
Tier 1 risk-based capital 12.45 13.43 15.12
Total risk-based capital 13.70 14.68 16.37
Common equity Tier 1 capital (CET1) 12.45 —(8) —(8)

CAPITAL RATIOS, COMPANY ONLY:
Tier 1 leverage capital 12.91% 13.16% 15.08%
Total risk-based capital 15.85 17.08 19.85
Common equity Tier 1 capital (CET1) 14.60 —(8) —(8)
At or For the Three Months Ended
March 31, December 31, March 31,
PER COMMON SHARE DATA: 2015 2014 2014
Basic earnings per share $ 0.71 $ 0.52 $ 0.29
Diluted earnings per share $ 0.70 $ 0.52 $ 0.29
Weighted average basic shares outstanding 2,935,553 2,929,073 3,039,237
Weighted average diluted shares outstanding 2,965,319 2,945,137 3,039,237
Common shares outstanding at period end 2,935,553(7) 2,929,073(6) 3,039,237(5)
Book value per share using outstanding common shares $ 23.23 $ 22.48 $ 20.88
(1) Annualized.
(2) Total noninterest expense as a percentage of net interest income and total other noninterest income.
(3)
Non-performing assets consists 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 consists of non-accruing loans.
(5) Common shares were calculated using shares outstanding of 3,240,125 at March 31, 2014, less 200,888 unallocated ESOP shares.
(6)
Common shares were calculated using shares outstanding of 3,235,625 at December 31, 2014, less 125,105 shares of restricted stock, and 181,447 unallocated ESOP shares.
(7)
Common shares were calculated using shares outstanding at period end of 3,235,625 at March 31, 2015, less 125,105 restricted stock shares, and 174,967 unallocated ESOP shares.
(8) CET1 ratio is a new regulatory capital ratio required beginning for the quarter ended March 31, 2015.

CONTACT: Joseph C. Adams, Chief Executive Officer Matthew D. Mullet, Chief Financial Officer (425) 771-5299 www.FSBWA.comSource:FS Bancorp, Inc.