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FS Bancorp, Inc. Reports Net Income for the Third Quarter of $3.5 million or $1.18 Per Diluted Share and Fifteenth Consecutive Quarterly Cash Dividend

MOUNTLAKE TERRACE, Wash., Oct. 27, 2016 (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 2016 third quarter net income of $3.5 million, or $1.18 per diluted share, compared to net income of $2.0 million, or $0.66 per diluted share, for the same period last year.

“We are extremely pleased by the record lending production volume and overall strong financial performance of the Company funded primarily with core deposits acquired from the new branches purchased in the first quarter of 2016,” stated Joe Adams, CEO of FS Bancorp. “In addition to continued strong profitability, I am pleased to announce that our Board of Directors has approved our fifteenth quarterly cash dividend in the amount of $0.10 per share.” The dividend will be paid on November 23, 2016, to shareholders of record as of November 10, 2016.

2016 Third Quarter Highlights

  • Net income of $3.5 million for the third quarter of 2016, compared to $2.8 million for the previous quarter, and an increase from $2.0 million for the comparable quarter one year ago;
  • Earnings per diluted share improved to $1.18 for the third quarter of 2016, compared to $0.96 for the preceding quarter in 2016, and increased from $0.66 for the third quarter of 2015;
  • Total gross loans increased $43.7 million, or 7.8%, to $604.2 million at September 30, 2016, compared to $560.6 million at June 30, 2016, and increased $113.5 million, or 23.1%, compared to $490.7 million at September 30, 2015;
  • Held for sale production increased $21.0 million, or 9.9% to $232.9 million for the third quarter of 2016, compared to $211.9 million in the second quarter of 2016, and $165.4 million in the third quarter of 2015;
  • Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $9.3 million, or 4.5%, to $216.8 million at September 30, 2016, from $207.5 million at June 30, 2016, and increased $113.6 million, or 110.1% from $103.2 million at September 30, 2015; and
  • Net recoveries of prior loan charge-offs were $35,000 for the three months ended September 30, 2016, compared to net loan charge-offs of $139,000 for the three months ended September 30, 2015, and net recoveries of $1,000 for the nine months ended September 30, 2016, compared to net loan charge-offs of $502,000 for the nine months ended September 30, 2015.

Balance Sheet and Credit Quality

Total assets increased $43.6 million, or 5.6% during the quarter to $827.5 million at September 30, 2016, compared to $783.9 million at June 30, 2016, and increased $185.5 million, or 28.9% from $642.0 million at September 30, 2015. The increase in total assets from June 30, 2016 was primarily due to increases in loans receivable, net of $42.7 million, loans held for sale of $13.4 million, cash and cash equivalents of $1.6 million, and an increase in other assets of $1.1 million, partially offset by a decrease in securities available-for-sale of $17.0 million. The increase in assets was funded by increases in deposits and, to a much lesser extent, borrowings. The $185.5 million increase in total assets at September 30, 2016, compared to September 30, 2015, was primarily due to increases in loans receivable, net of $110.2 million, securities available-for-sale of $27.1 million, loans held for sale of $23.8 million, and cash and cash equivalents of $11.1 million.

LOAN PORTFOLIO
(Dollars in thousands)September 30, 2016 June 30, 2016 September 30, 2015
Amount Percent Amount Percent Amount Percent
REAL ESTATE LOANS
Commercial$ 55,794 9.2%$ 50,936 9.1%$ 42,958 8.8%
Construction and development 90,201 14.9 76,601 13.7 77,965 15.9
Home equity 19,649 3.3 18,591 3.3 16,727 3.4
One-to-four-family (excludes held for
sale) 116,886 19.4 115,450 20.6 92,023 18.7
Multi-family 33,988 5.6 34,176 6.1 22,716 4.6
Total real estate loans 316,518 52.4 295,754 52.8 252,389 51.4
CONSUMER LOANS
Indirect home improvement 104,524 17.3 102,246 18.2 103,172 21.0
Solar 34,806 5.8 33,364 5.9 25,568 5.2
Marine 29,268 4.8 28,128 5.0 23,436 4.8
Other consumer 1,978 0.3 1,998 0.4 2,328 0.5
Total consumer loans 170,576 28.2 165,736 29.5 154,504 31.5
COMMERCIAL BUSINESS LOANS
Commercial and industrial 68,526 11.4 64,413 11.5 58,498 11.9
Warehouse 48,598 8.0 34,659 6.2 25,318 5.2
Total commercial business loans 117,124 19.4 99,072 17.7 83,816 17.1
Total loans receivable, gross 604,218 100.0% 560,562 100.0% 490,709 100.0%
Allowance for loan losses (9,586) (8,951) (7,388)
Deferred cost, fees, and discounts, net (1,832) (1,507) (729)
Total loans receivable, net$592,800 $550,104 $482,592

Loans receivable, net increased $42.7 million, or 7.8%, to $592.8 million at September 30, 2016, from $550.1 million at June 30, 2016, and increased $110.2 million, or 22.8%, from $482.6 million at September 30, 2015. Total real estate loans increased $20.8 million quarter over quarter including increases of $13.6 million in construction and development loans, $4.9 million in commercial real estate loans, $1.4 million in portfolio one-to-four-family loans, and $1.1 million in home equity loans. Quarter over quarter changes in other loan categories include a $13.9 million increase in warehouse lending, a $4.8 million increase in consumer loans, and a $4.1 million increase in commercial and industrial loans.

One-to-four-family originations of loans held for sale including loans brokered to other institutions increased $21.0 million, or 9.9%, to $232.9 million during the quarter ended September 30, 2016, compared to $211.9 million for the preceding quarter, and $165.4 million for the same quarter one year ago. The growth in originations was a result of continued strong purchase activity associated with seasonal home purchases in the Pacific Northwest and low interest rates that increased home refinances. The percentage of one-to-four-family mortgage loan originations for home purchases was 60.9% of third quarter volume versus 39.1% of third quarter volume for refinance activity. This compares to 75.9% of second quarter volume to purchase a home versus 24.1% to refinance their home in the second quarter of 2016. During the quarter ended September 30, 2016, the Company sold $205.1 million of one-to-four-family mortgage loans, compared to $193.4 million in sales for the preceding quarter, and sales of $137.5 million for the quarter ended September 30, 2015.

The Company sold $13.4 million of securities available-for-sale during the third quarter of 2016 realizing a gain of $146,000. These sales provided additional funds for loan growth during the quarter. The gains realized were associated with the sale of select securities to profit from rising prices as these securities were approaching maturity. The average yield on these sold securities available-for-sale at the time of sale was 1.5%.

The allowance for loan losses at September 30, 2016 was $9.6 million, or 1.6% of gross loans receivable, excluding loans held for sale, compared to $9.0 million, or 1.6% of gross loans receivable, excluding loans held for sale at June 30, 2016, and $7.4 million, or 1.5% of gross loans receivable, excluding loans held for sale at September 30, 2015. Non-performing loans, consisting of non-accrual loans, decreased to $594,000 at September 30, 2016, from $620,000 at June 30, 2016, and decreased from $841,000 at September 30, 2015. Substandard loans increased $585,000, or 18.7%, to $3.7 million at September 30, 2016, compared to $3.1 million at June 30, 2016, and increased from $2.8 million at September 30, 2015. The $915,000 increase in substandard loans from one year ago was primarily associated with a $1.2 million increase in substandard commercial business loans, primarily offset by a decrease in real estate loans. The majority of loans reported as substandard are a result of the financial performance by the borrowers. There was no other real estate owned (“OREO”) at September 30, 2016, at June 30, 2016, or at September 30, 2015. At September 30, 2016, the Company had one restructured loan of $57,000 which was performing in accordance with its modified terms, compared to $58,000 at June 30, 2016, and $736,000 at September 30, 2015, of which one loan with a balance of $525,000 was on nonaccrual, and the remaining loans with a balance of $211,000 were performing in accordance with their modified terms.

Total deposits increased $37.0 million, or 5.6%, to $703.2 million at September 30, 2016, from $666.1 million at June 30, 2016, and increased $203.3 million, or 40.7%, from $499.9 million at September 30, 2015, primarily due to the purchase of the four retail branches located on the Olympic Peninsula (“branch purchase”) in the first quarter of 2016. Relationship-based transactional deposits increased $9.3 million to $216.8 million at September 30, 2016, from $207.5 million at June 30, 2016, and increased from $103.2 million at September 30, 2015. Money market and savings accounts increased $5.9 million, or 2.1%, to $288.7 million at September 30, 2016, from $282.8 million at June 30, 2016, and increased $92.5 million, or 47.2%, from $196.1 million at September 30, 2015. Time deposits increased $21.9 million, or 12.5%, to $197.7 million at September 30, 2016, from $175.8 million at June 30, 2016, and decreased $2.8 million, or 1.4%, from $200.5 million at the same period last year. Growth in time deposits quarter over quarter was a result of management extending the duration of its certificates of deposit. Non-retail certificates of deposit which include brokered certificates of deposit, online certificates of deposit, and public funds, increased $21.9 million to $60.5 million at September 30, 2016, compared to $38.6 million at June 30, 2016, and increased $7.3 million from $53.2 million at September 30, 2015. Management remains focused on growth in lower cost relationship-based deposits.

DEPOSIT BREAKDOWN
(Dollars in thousands)
September 30, 2016 June 30, 2016 September 30, 2015
Amount Percent Amount Percent Amount Percent
Noninterest-bearing checking$143,251 20.4% $145,304 21.8% $63,725 12.7%
Interest-bearing checking63,682 9.1 54,709 8.2 33,476 6.7
Savings50,348 7.2 50,049 7.5 27,891 5.6
Money market238,321 33.9 232,754 35.0 168,252 33.7
Certificates of deposit less than $100,00093,953 13.3 72,014 10.8 68,329 13.7
Certificates of deposit of $100,000 through $250,00076,855 10.9 76,971 11.6 97,248 19.4
Certificates of deposit of $250,000 and over26,910 3.8 26,811 4.0 34,963 7.0
Escrow accounts related to mortgages serviced9,844 1.4 7,504 1.1 5,999 1.2
Total$703,164 100.0% $666,116 100.0% $499,883 100.0%

At September 30, 2016, we had total debt of $30.9 million consisting of borrowings of $21.0 million and a subordinated note, net of $9.8 million. Borrowings increased $1.4 million, or 6.9%, to $21.0 million at September 30, 2016, from $19.7 million at June 30, 2016, due to the addition of Federal Home Loan Bank (“FHLB”) Fed Funds. The increased borrowings were utilized to fund held for sale loan production.

Total stockholders’ equity increased $3.5 million, or 4.6% to $79.6 million at September 30, 2016, from $76.1 million at June 30, 2016, and increased $6.3 million, or 8.6%, from $73.2 million at September 30, 2015. The increase in equity from the second quarter of 2016 was predominately a result of net income of $3.5 million. Book value per common share was $27.89 at September 30, 2016, compared to $26.73 at June 30, 2016, and $24.54 at September 30, 2015.

The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation with a total risk-based capital ratio of 13.5%, a Tier 1 leverage capital ratio of 10.3%, and a common equity Tier 1 (“CET1”) capital ratio of 12.2% at September 30, 2016. At September 30, 2015, the total risk-based capital ratio was 13.9%, the Tier 1 leverage capital ratio was 11.4%, and the CET1 capital ratio was 12.6%.

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 12.4%, a Tier 1 leverage capital ratio of 9.4%, and a CET1 ratio of 11.1% at September 30, 2016, compared to 14.7%, 12.2%, and 13.5% at September 30, 2015, respectively.

Operating Results

Net interest income increased $1.6 million, or 22.6%, to $8.8 million for the three months ended September 30, 2016, from $7.1 million for the three months ended September 30, 2015. Net interest income increased $4.4 million, or 21.5%, to $24.7 million for the nine months ended September 30, 2016, from $20.3 million for the nine months ended September 30, 2015.

The net interest margin ("NIM") decreased 42 basis points to 4.55% for the three months ended September 30, 2016, from 4.97% for the three months ended September 30, 2015, and decreased 70 basis points to 4.36% for the nine months ended September 30, 2016, from 5.06% for the same period of the prior year. The decreased NIM reflects continued growth in diversified, lower yielding assets including loan and investment assets. As a percentage, consumer loans to total loans were 28.2% at September 30, 2016, compared to 31.5% at September 30, 2015, reflecting our loan diversification strategy. The average cost of funds decreased 14 basis points to 0.57% for the three months ended September 30, 2016, from 0.71% for the three months ended September 30, 2015, and decreased 13 basis points to 0.59% for the nine months ended September 30, 2016, from 0.72% for the nine months ended September 30, 2015. The decrease primarily reflects a significant amount of relatively low cost relationship-based transactional deposits acquired in the branch purchase and the decline in the percentage of higher cost certificates of deposit to total deposits over the last year. Management remains focused on matching deposit duration with the duration of earning assets where appropriate.

The provision for loan losses was unchanged at $600,000 for both the three months ended September 30, 2016 and 2015. Net recoveries totaled $35,000 during the three months ended September 30, 2016, compared to net charge-offs of $139,000 during the three months ended September 30, 2015. The provision for loan losses was also unchanged at $1.8 million for the nine months ended September 30, 2016 and 2015. Net recoveries totaled $1,000 during the nine months ended September 30, 2016, compared to net charge-offs of $502,000 during the nine months ended September 30, 2015.

Noninterest income increased $2.9 million, or 65.6%, to $7.2 million for the three months ended September 30, 2016, from $4.4 million for the three months ended September 30, 2015. This increase was primarily due to a $2.3 million increase in gain on sale of loans, a $371,000 increase in service charges and fee income, and a $146,000 increase in gain on sale of investment securities. Noninterest income increased $4.4 million, or 32.1%, to $18.1 million for the nine months ended September 30, 2016, from $13.7 million for the nine months ended September 30, 2015. The increase during the period was primarily due to a $3.2 million increase in gain on sale of loans, and a $1.0 million increase in service charges and fee income.

Noninterest expense increased $2.5 million, or 31.7%, to $10.3 million for the three months ended September 30, 2016, from $7.8 million for the three months ended September 30, 2015. The increase in noninterest expense was primarily a result of a $2.0 million, or 46.4% increase in salaries and benefits, including $1.8 million of commissions and incentives for the loan production staff reflecting our increased loan production, as well as stock-based compensation associated with the equity incentive plan with the remainder of the increase in salaries and benefits of $200,000 primarily due to additional staff added as a result of the branch purchase. Other expense categories also increased due to the branch purchase including a $332,000, or 29.7% increase in operations costs, a $157,000, or 41.3% increase in data processing, a $140,000, or 100.0% increase in amortization of the core deposit intangible, and a $100,000, or 20.1% increase in occupancy, partially offset by a decrease of $432,000 in acquisition costs. Increases not associated with the branch purchase included a $336,000, or 88.7% increase in loan costs, partially offset by a recovery of $216,000 of servicing rights impairment.

Noninterest expense increased $7.1 million, or 32.9%, to $28.8 million for the nine months ended September 30, 2016, from $21.7 million for the nine months ended September 30, 2015, primarily as a result of the branch purchase and Company growth including a $4.0 million, or 32.5% increase in salaries and benefits, a $1.0 million, or 31.5% increase in operations, a $660,000, or 58.5% increase in loan costs, a $444,000, or 39.2% increase in data processing, a $387,000, or 27.9% increase in occupancy, and a $222,000, or 17.5% increase in professional fees. We also incurred $382,000 in amortization of the core deposit intangible attributable to the branch purchase during the nine months ended September 30, 2016, as compared to none in the same period last year.

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 eleven branches and four loan production offices in various suburban communities in the greater Puget Sound area, and one loan production office in the market area of the Tri-Cities. The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities home lending markets. The Bank purchased four retail bank branches from Bank of America (two in Clallam and two in Jefferson counties) on January 22, 2016, and the branches opened as 1st Security Bank branches on January 25, 2016.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; our ability to execute our plans to grow our residential construction lending, our mortgage banking operations and our warehouse lending and the geographic expansion of our indirect home improvement lending; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and expected cost savings and other benefits within the anticipated time frames or at all, including, in particular, our recent acquisition of four branches from Bank of America, NA; secondary market conditions for loans and our ability to sell loans in the secondary market; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission-which are available on our website at www.fsbwa.com and on the SEC's website at www.sec.gov. Any of the forward-looking statements that we make in this press release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2016 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)

September 30,June 30,September 30,
2016 2016 2015
UnauditedUnauditedUnaudited
ASSETS
Cash and due from banks$
3,445 $
5,263 $
1,272
Interest-bearing deposits at other financial institutions 13,068 9,629 4,160
Total cash and cash equivalents 16,513 14,892 5,432
Certificates of deposit at other financial institutions 14,009 14,010 11,181
Securities available-for-sale, at fair value 80,762 97,728 53,679
Loans held for sale, at fair value 77,129 63,696 53,335
Loans receivable, net 592,800 550,104 482,592
Accrued interest receivable 2,557 2,420 2,057
Premises and equipment, net 15,071 14,786 13,734
Federal Home Loan Bank (“FHLB”) stock, at cost 2,004 1,600 2,972
Bank owned life insurance (“BOLI”) 9,983 9,911 9,701
Servicing rights, held at the lower of cost or fair value 7,654 6,751 5,226
Goodwill 2,312 2,312
Core deposit intangible, net 1,857 1,997
Other assets 4,835 3,713 2,071
TOTAL ASSETS$
827,486 $
783,920 $
641,980
LIABILITIES
Deposits:
Noninterest-bearing accounts$
153,095 $
152,808 $
69,724
Interest-bearing accounts 550,069 513,308 430,159
Total deposits 703,164 666,116 499,883
Borrowings 21,030 19,670 59,269
Subordinated note:
Principal amount 10,000 10,000
Unamortized debt issuance costs (180) (185)
Total subordinated note less unamortized debt issuance costs 9,820 9,815
Other liabilities 13,915 12,268 9,590
Total liabilities 747,929 707,869 568,742
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued or outstanding
Common stock, $0.01 par value; 45,000,000 shares
authorized; 3,057,753 shares issued and outstanding
at September 30, 2016, 3,056,107 at June 30, 2016,
and 3,241,120 at September 30, 2015 31 31 32
Additional paid-in capital 26,866 26,516 30,289
Retained earnings 53,326 50,160 44,373
Accumulated other comprehensive income, net of tax 773 848 234
Unearned shares - Employee Stock Ownership Plan (“ESOP”) (1,439) (1,504) (1,690)
Total stockholders’ equity 79,557 76,051 73,238
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$827,486 $783,920 $
641,980


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

Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015 2016 2015
Unaudited Unaudited Unaudited Unaudited
INTEREST INCOME
Loans receivable including fees $ 9,241 $7,730 $ 26,014 $ 22,042
Interest and dividends on investment securities, cash and cash equivalents, and interest-bearing deposits at other financial institutions 538 329 1,751 874
Total interest and dividend income 9,779 8,059 27,765 22,916
INTEREST EXPENSE
Deposits 808 866 2,411 2,425
Borrowings 50 56 177 195
Subordinated note 171 512
Total interest expense 1,029 922 3,100 2,620
NET INTEREST INCOME 8,750 7,137 24,665 20,296
PROVISION FOR LOAN LOSSES 600 600 1,800 1,800
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
8,150 6,537 22,865 18,496
NONINTEREST INCOME
Service charges and fee income 899 528 2,489 1,452
Gain on sale of loans 5,922 3,632 14,722 11,565
Gain on sale of investment securities 146 146 76
Earnings on cash surrender value of BOLI 71 51 211 146
Other noninterest income 210 165 557 486
Total noninterest income 7,248 4,376 18,125 13,725
NONINTEREST EXPENSE
Salaries and benefits 6,287 4,295 16,510 12,461
Operations 1,450 1,118 4,221 3,209
Occupancy 597 497 1,775 1,388
Data processing 537 380 1,576 1,132
Gain on sale of OREO (150)
Loan costs 715 379 1,789 1,129
Professional and board fees 502 479 1,490 1,268
Federal Deposit Insurance Corporation insurance 98 69 306 229
Marketing and advertising 202 183 553 458
Acquisition costs 432 389 432
Amortization of core deposit intangible 140 382
Recovery on servicing rights (216) (2)
Total noninterest expense 10,312 7,832 28,839 21,706
INCOME BEFORE PROVISION FOR INCOME TAXES 5,086 3,081 12,151 10,515
PROVISION FOR INCOME TAXES 1,629 1,086 4,198 3,656
NET INCOME $ 3,457 $1,995 $ 7,953 $6,859
Basic earnings per share $ 1.21 $0.67 $ 2.74 $2.31
Diluted earnings per share $ 1.18 $0.66 $ 2.66 $2.28



KEY FINANCIAL RATIOS AND DATA (Unaudited)
(Dollars in thousands, except per share amounts)At or For the Three Months Ended
PERFORMANCE RATIOS:September 30,
2016
June 30,
2016
September 30,
2015
Return on assets (ratio of net income to average total assets) (1) 1.71% 1.45% 1.33%
Return on equity (ratio of net income to average equity) (1) 18.08 15.28 11.18
Yield on average interest-earning assets 5.09 4.88 5.61
Interest incurred on liabilities as a percentage of average
noninterest bearing deposits and interest-bearing liabilities 0.57 0.57 0.71
Interest rate spread information – average during period 4.52 4.31 4.90
Net interest margin (1) 4.55 4.34 4.97
Operating expense to average total assets 5.11 4.91 5.21
Average interest-earning assets to average interest-bearing
liabilities 135.98 137.47 127.67
Efficiency ratio (2) 64.46 65.57 68.03
At or For the Nine Months Ended
PERFORMANCE RATIOS:September 30,
2016
September 30,
2015
Return on assets (ratio of net income to average total assets) (1) 1.34% 1.63%
Return on equity (ratio of net income to average equity) (1) 14.17 13.38
Yield on average interest-earning assets 4.91 5.72
Interest incurred on liabilities as a percentage of average
noninterest bearing deposits and interest-bearing liabilities 0.59 0.72
Interest rate spread information – average during period 4.32 4.99
Net interest margin (1) 4.36 5.06
Operating expense to average total assets 4.88 5.17
Average interest-earning assets to average interest-bearing
liabilities 135.79 127.18
Efficiency ratio (2) 67.40 63.80
ASSET QUALITY RATIOS AND DATA:September 30,
2016
June 30,
2016
September 30,
2015
Non-performing assets to total assets at end of period (3) 0.07% 0.08 % 0.13%
Non-performing loans to total gross loans (4) 0.10 0.11 0.17
Allowance for loan losses to non-performing loans (4) 1,613.80 1,443.71 878.48
Allowance for loan losses to gross loans receivable 1.59 1.60 1.51
CAPITAL RATIOS, BANK ONLY:
Tier 1 leverage-based capital 10.33% 10.14% 11.37%
Tier 1 risk-based capital 12.21 12.77 12.59
Total risk-based capital 13.46 14.02 13.85
Common equity Tier 1 capital 12.21 12.77 12.59


CAPITAL RATIOS, COMPANY ONLY:
Tier 1 leverage-based capital 9.38% 9.11% 12.24%
Total risk-based capital 12.39 12.78 14.71
Common equity Tier 1 capital 11.14 11.53 13.47
At or For the Three Months Ended

PER COMMON SHARE DATA:
September 30,
2016
June 30,
2016
September 30,
2015
Basic earnings per share$1.21 $0.98 $0.67
Diluted earnings per share$1.18 $0.96 $0.66
Weighted average basic shares outstanding 2,851,147 2,887,525 2,984,164
Weighted average diluted shares outstanding 2,938,439 2,966,031 3,040,007
Common shares outstanding at period end 2,852,905 (5) 2,844,778 (6) 2,984,430 (7)
Book value per share using outstanding common shares$27.89 $26.73 $24.54
Tangible book value per share using outstanding common shares (8)$26.42 $25.22 $24.54

_______________________________________

(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 3,057,753 at September 30, 2016, less 68,763 restricted stock shares, and 136,085 unallocated ESOP shares.
(6)Common shares were calculated using shares outstanding of 3,056,107 at June 30, 2016, less 68,763 restricted stock shares, and 142,566 unallocated ESOP shares.
(7)Common shares were calculated using shares outstanding at period end of 3,241,120 at September 30, 2015, less 94,684 restricted stock shares, and 162,006 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 reconciliation in the table below.

Non-GAAP Financial Measures:

In addition to 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.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Further, this non-GAAP financial measure of tangible book value per share 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 a similarly titled measure reported by other companies.

Reconciliation of the GAAP and non-GAAP financial measure is presented below.

September 30,
2016
June 30,
2016
September 30,
2015
(Dollars in thousands)
Stockholders' equity$79,557 $76,051 $73,238
Less: Goodwill and core deposit intangible4,169 4,309
Tangible common stockholders' equity$75,388 $71,742 $73,238
Common shares outstanding at end of period2,852,905 2,844,778 2,984,430
Common stockholders' equity (book value) per share (GAAP)$27.89 $26.73 $24.54
Tangible common stockholders' equity (tangible book value) per share (non-GAAP)$26.42 $25.22 $24.54

Joseph C. Adams, Chief Executive Officer Matthew D. Mullet, Chief Financial Officer (425) 771-5299 www.FSBWA.com

Source:FS Bancorp, Inc.