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FS Bancorp, Inc. Reports Net Income for the Second Quarter of $1.1 Million or $0.36 per Share and Declaration of Cash Dividend

MOUNTLAKE TERRACE, Wash., July 25, 2013 (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 2013 second quarter net income of $1.1 million, or $0.36 per diluted share, compared to $621,000 for the same period last year. The second quarter of 2012 was prior to the completion of the Company's initial public offering on July 9, 2012 with the issuance of 3,240,125 shares of its common stock, which generated gross proceeds of $32.4 million; therefore, the comparative operating results before that date are for the Bank only.

"The second quarter reflects strong results in our home lending, consumer lending, and commercial lending teams funded by growth in relationship deposits including the opening of our newest deposit branch on Capitol Hill. I am pleased to announce that our Board of Directors approved our second quarterly cash dividend of $0.05 per share" stated Joe Adams, CEO of FS Bancorp. The dividend will be paid on August 30, 2013, to shareholders of record as of August 15, 2013. The payment of dividends represents the Company's commitment to provide an annual cash return on investment to our shareholders while increasing long-term shareholder value.

Management continues to build the balance sheet based upon a target asset mix. Initiatives include the sale of long-term fixed residential loans, commercial real estate loans, and consumer loans. As of June 30, 2013, the Company held $9.9 million in residential loans held for sale, $2.7 million of consumer loans held for sale, and $529,000 of commercial real estate loans held for sale. "We are pleased with the balanced growth in the second quarter of 2013 and will continue to manage the balance sheet to diversify our revenue channels." stated the Company's Chief Financial Officer, Matthew Mullet.

2013 Second Quarter Highlights

  • Total assets increased to $378.9 million at June 30, 2013, compared to $371.6 million at March 31, 2013 and $340.9 million at June 30, 2012;
  • Net income decreased to $1.1 million in the second quarter compared to $1.2 million in the first quarter of 2013, and increased from $621,000 for the comparable quarter one year ago;
  • Earnings per diluted share were $0.36 for the second quarter of 2013 compared to $0.41 for the preceding quarter;
  • Net interest margin increased to 5.47% in the second quarter compared to 5.45% for the preceding quarter and from 5.39% for the comparable quarter one year ago;
  • The ratio of non-performing assets to total assets improved year over year to 1.1% at June 30, 2013 compared to 1.4% at June 30, 2012 and increased slightly from 1.0% at March 31, 2013; and
  • Capital levels at the Bank for Total Risk-Based Capital of 16.9% increased in the second quarter from 16.0% in the first quarter of 2013 and Tier 1 Leverage Capital Ratio of 13.1% slightly decreased from 13.2% in the first quarter of 2013.

Balance Sheet and Credit Quality

Total assets increased to $378.9 million at June 30, 2013 compared to $371.6 million at March 31, 2013 and $340.9 million at June 30, 2012. The increase in total assets from March 31, 2013 was primarily due to increases in net loans receivable of $3.9 million, other assets of $1.7 million and securities available-for-sale of $1.0 million. The increase in assets from June 30, 2012 was primarily due to increases in net loans receivable of $35.2 million, loans held for sale of $9.1 million, securities available-for-sale of $6.3 million and premises and equipment of $2.4 million partially offset by a $16.8 million decrease in cash and interest-bearing deposits.

Net loans receivable increased $3.9 million to $280.4 million at June 30, 2013 from $276.5 million as of March 31, 2013 and increased $35.2 million from $245.2 million at June 30, 2012. Total real estate loans increased $7.1 million during the quarter due to increased growth in residential construction and development, one-to-four-family and multi-family loans. Consumer loans increased $3.9 million to $117.9 million as of June 30, 2013 compared to $114.0 million as of March 31, 2013 and $114.7 million June 30, 2012. The $7.1 million decrease in commercial business loans during the quarter included the planned runoff of two larger participations in the Shared National Credit Program totaling $5.7 million.

LOAN PORTFOLIO
(Dollars in thousands)
June 30, 2013 March 31, 2013 June 30, 2012
Amount Percent Amount Percent Amount Percent
REAL ESTATE LOANS
Commercial $34,762 12.2% $ 36,282 12.9% $30,829 12.4%
Construction and development 43,177 15.1 39,074 13.9 18,539 7.4
Home equity 15,356 5.4 15,627 5.5 14,949 6.0
One-to-four-family (held for sale excluded) 16,366 5.7 13,465 4.7 11,560 4.6
Multi-family 4,145 1.4 2,247 0.8 1,854 0.8
Total real estate loans 113,806 39.8 106,695 37.8 77,731 31.2
CONSUMER LOANS
Indirect home improvement 94,058 32.9 91,369 32.4 80,568 32.3
Recreational 20,520 7.2 18,750 6.7 28,065 11.3
Automobile 1,485 0.5 1,910 0.7 3,765 1.5
Home improvement 558 0.2 585 0.2 750 0.3
Other 1,309 0.5 1,338 0.5 1,504 0.6
Total consumer loans 117,930 41.3 113,952 40.5 114,652 46.0
COMMERCIAL BUSINESS LOANS 53,966 18.9 61,061 21.7 56,952 22.8
Total loans 285,702 100.0% 281,708 100.0% 249,335 100.0%
Allowance for loan losses (5,276) (5,044) (4,332)
Deferred cost, fees, and discounts, net (15) (163) 199
Total loans receivable, net $280,411 $276,501 $245,202

One-to-four-family originations of loans held for sale increased 53.9% to $80.5 million during the quarter ended June 30, 2013 compared to $52.3 million for the preceding quarter with increases in purchase financing supplementing refinance closings. The percentage of one-to-four family mortgage loan originations related to the purchase was 55.3% purchase volume (44.7% refinance activity) for the second quarter of 2013 compared to 45.8% purchase volume (54.2% refinance activity) for the first quarter of 2013. Loans held for sale decreased $7.1 million to $13.1 million at June 30, 2013 from $20.2 million at March 31, 2013 and $4.1 million at June 30, 2012. Management reduced the number of loans held for sale at quarter end due to the volatility in mortgage rates. The Company continues to expand its home lending operations and to sell one-to-four-family mortgage loans into the secondary market for asset/liability management purposes and to generate noninterest income. During the quarter ended June 30, 2013, the Company sold $89.9 million of one-to-four-family mortgage loans compared to $41.2 million for the preceding quarter and $24.0 million for the same quarter one year ago. The Company also held $2.7 million in consumer loans and $529,000 in commercial real estate loans expected to be sold during the third quarter that are included in held for sale balances.

The allowance for loan losses at June 30, 2013 was $5.3 million, or 1.9% of gross loans receivable, compared to $5.0 million or 1.8% of gross loans receivable as of March 31, 2013 and $4.3 million, or 1.7% of gross loans receivable at June 30, 2012. Non-performing loans, consisting of non-accrual loans, increased to $2.3 million at June 30, 2013 from $1.8 million at March 31, 2013 and $1.7 million at June 30, 2012 due to one commercial real estate loan of $684,000 moving to non-accrual status. Other real estate owned ("OREO") totaled $1.8 million at June 30, 2013, compared to $2.0 million at March 31, 2013 and $3.0 million at June 30, 2012. The $151,000 or 7.7% reduction in OREO quarter over quarter reflects the sale of $70,000 in OREO properties and write-downs to fair value of $117,000 during the quarter. At June 30, 2013, the Company also had $3.2 million in restructured loans of which $2.4 million were performing in accordance with their modified payment terms and $807,000 were on non-accrual status.

Total deposits increased $7.1 million or 2.4% to $300.9 million at June 30, 2013, from $293.8 million at March 31, 2013, and decreased from $307.4 million at June 30, 2012. Transaction accounts (noninterest and interest-bearing checking accounts) increased to $60.4 million as of June 30, 2013 from $59.1 million at March 31, 2013 and $46.5 million at June 30, 2012. Management extended the deposit duration of time deposits with additional five year term brokered deposits in the second quarter which increased to $16.9 million as of June 30, 2013 from $13.9 million as of March 31, 2013.

DEPOSIT BREAKDOWN
(Dollars in thousands) June 30, 2013 March 31, 2013 June 30, 2012
Amount Percent Amount Percent Amount Percent
Interest-bearing checking $23,288 7.8% $22,579 7.7% $20,650 6.7%
Noninterest-bearing checking 37,105 12.3 36,500 12.4 25,811 8.4
Savings 14,744 4.9 12,254 4.2 53,268 17.3
Money market 117,706 39.1 117,482 40.0 103,733 33.7
Certificates of deposits of less than $100,000 41,806 13.9 39,358 13.4 41,651 13.6
Certificates of deposits of $100,000 through $250,000 43,286 14.4 43,683 14.9 38,417 12.5
Certificates of deposits of more than $250,000 22,978 7.6 21,925 7.4 23,840 7.8
Total $300,913 100% $293,781 100% $307,370 100%

Total stockholders' equity increased $138,000 to $61.1 million at June 30, 2013 from $60.9 million at March 31, 2013. The increase in stockholders' equity was predominantly a result of net income of $1.1 million partially offset by a decline in accumulated other comprehensive income of $920,000, which includes the unrealized loss on securities available-for-sale, net of tax, and dividends paid of $150,000. Bond prices in the second quarter of 2013 declined in value which is reflected in the unrealized loss associated with securities available-for-sale. Book value per common share was $20.23 as of June 30, 2013 compared to $20.22 from the previous quarter.

The Bank is well capitalized with a Total Risk-Based Capital ratio of 16.9% and a Tier 1 Leverage Capital ratio of 13.1% at June 30, 2013. The Company's Total Risk-Based Capital and Tier 1 Leverage Capital ratios were 20.7% and 16.3%, respectively, as of June 30, 2013.

Operating Results

Net interest income before the provision for loan losses increased $1.0 million, or 26.5%, to $4.9 million for the three months ended June 30, 2013, from $3.9 million for the three months ended June 30, 2012. Net interest income before the provision for loan losses increased $2.1 million, or 27.1%, to $9.6 million for the six months ended June 30, 2013, from $7.5 million for the six months ended June 30, 2012.

The net interest margin increased four basis points to 5.46% for the six months ended June 30, 2013, from 5.42% for the same period of the prior year. The increase was primarily due to a shift in assets during the period from lower yielding cash and cash equivalents into higher yielding loans and investment securities, coupled with a 26 basis point decline in the cost of funds to 0.76% for the six months ended June 30, 2013 from 1.02% for the same period in the prior year. The Company's cost of funds declined primarily as a result of increases in the transaction accounts and lower money market and interest bearing checking deposit rates paid during the quarter.

The provision for loan losses was $600,000 for the three months ended June 30, 2013, compared to $550,000 for the three months ended June 30, 2012. The $50,000 increase in the provision primarily related to higher loan balances and an increase in the origination of construction and development and consumer loans. The provision for loan losses was $1.2 million for the six months ended June 30, 2013, compared to $1.1 million for the six months ended June 30, 2012. Non-performing loans were $2.3 million, or 0.8% of total loans at June 30, 2013, compared to $1.7 million, or 0.7% of total loans, at June 30, 2012. During the three months ended June 30, 2013, net charge-offs totaled $368,000 compared to $418,000 during the three months ended June 30, 2012.

Noninterest income increased $1.8 million, or 161.2%, to $2.9 million for the three months ended June 30, 2013, from $1.1 million for the three months ended June 30, 2012. The increase during the period was primarily due to $1.8 million in gains associated with the sale of mortgage loans in the secondary market as part of the Company's home lending initiative. Noninterest income increased $3.4 million, or 181.5%, to $5.2 million for the six months ended June 30, 2013, from $1.8 million for the six months ended June 30, 2012 as the gain on sale of loans increased $3.2 million during this period.

Noninterest expense increased $1.8 million, or 45.8%, to $5.6 million for the three months ended June 30, 2013, from $3.8 million for the three months ended June 30, 2012. Changes in noninterest expense included a $1.3 million, or 68.2%, increase in salaries and benefit costs primarily as a result of variable commission based expenses of $950,000 related to increases in loan volume and ESOP expense of $122,000, a $167,000, or 100.6% increase in professional and board fees associated with public company reporting obligations, a $147,000, or 74.2% increase in loan costs associated with increased lending activities, and a $135,000, or 21.6% increase in operations cost associated with our expanded lending platform. Noninterest expense increased $2.7 million, or 35.7%, to $10.1 million for the six months ended June 30, 2013, from $7.4 million for the six months ended June 30, 2012 for essentially the same reasons except that this period also included a $451,000 reduction in write downs to fair value of OREO, reflecting the stabilization of real estate values in our market area.

About FS Bancorp

FS Bancorp, a Washington corporation, is the holding company for 1st Security Bank of Washington. The Bank provides loan and deposit services to customers who are predominately small and middle-market businesses and individuals in western Washington through its seven branches in suburban communities in the greater Puget Sound area.

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; 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, including as a result of Basel III; 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, 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, 2012.

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 2013 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 data)
June 30, March 31, June 30,
2013 2013 2012
(Unaudited) (Unaudited) (Unaudited)
ASSETS
Cash and due from banks $ 2,296 $ 1,354 $ 3,085
Interest-bearing deposits at other financial institutions 14,117 7,552 30,151
Securities available-for-sale, at fair value 44,186 43,158 37,864
Federal Home Loan Bank stock, at cost 1,733 1,749 1,797
Loans held for sale 13,146 20,160 4,094
Loans receivable, net 280,411 276,501 245,202
Accrued interest receivable 1,292 1,328 1,129
Premises and equipment, net 13,525 13,024 11,154
Other real estate owned ("OREO") 1,805 1,956 2,950
Deferred tax asset 1,349 1,472 --
Other assets 5,002 3,317 3,485
TOTAL ASSETS $ 378,862 $ 371,571 $ 340,911
LIABILITIES
Deposits
Interest-bearing accounts $ 263,808 $ 257,281 $ 281,559
Noninterest-bearing accounts 37,105 36,500 25,811
Total deposits 300,913 293,781 307,370
Borrowings 13,664 13,659 4,100
Other liabilities 3,206 3,190 1,539
Total liabilities 317,783 310,630 313,009
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized; None issued or outstanding -- -- --
Common stock, $.01 par value; 45,000,000 shares authorized; 3,240,125 shares issued and outstanding at June 30, 2013, and March 31, 2013, respectively and 0 shares at June 30, 2012 32 32 --
Additional paid-in capital 29,979 29,923 --
Retained earnings 33,917 32,981 27,349
Accumulated other comprehensive income (loss) (609) 311 553
Unearned shares - Employee Stock Ownership Plan ("ESOP") (2,240) (2,306) --
Total stockholders' equity 61,079 60,941 27,902
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 378,862 $ 371,571 $ 340,911

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans receivable $ 5,233 $ 4,341 $ 10,171 $ 8,475
Interest and dividends on investment securities, and cash and cash equivalents 203 163 440 328
Total interest income 5,436 4,504 10,611 8,803
INTEREST EXPENSE
Deposits 464 569 936 1,172
Borrowings 48 44 87 90
Total interest expense 512 613 1,023 1,262
NET INTEREST INCOME 4,924 3,891 9,588 7,541
PROVISION FOR LOAN LOSSES 600 550 1,200 1,065
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,324 3,341 8,388 6,476
NONINTEREST INCOME
Service charges and fee income 494 505 948 995
Gain on sale of loans 2,228 445 3,779 551
Gain on sale of investment securities 96 94 264 106
Other noninterest income 113 78 203 193
Total noninterest income 2,931 1,122 5,194 1,845
NONINTEREST EXPENSE
Salaries and benefits 3,135 1,864 5,612 3,561
Operations 759 624 1,517 1,131
Occupancy 385 314 702 603
Data processing 266 275 532 508
OREO fair value write-downs, net of loss on sales 117 216 195 646
OREO expenses 16 64 38 98
Loan costs 345 198 645 337
Professional and board fees 333 166 563 303
FDIC insurance 67 56 123 119
Marketing and advertising 158 67 243 120
Impairment (recovery) on mortgage servicing rights 22 (2) (100) (3)
Total noninterest expense 5,603 3,842 10,070 7,423
INCOME BEFORE PROVISION FOR INCOME TAX 1,652 621 3,512 898
PROVISION FOR INCOME TAX 566 -- 1,191 --
NET INCOME $ 1,086 $ 621 $ 2,321 $ 898
Basic earnings per share $ 0.36 n/a(1) $ 0.77 n/a(1)
Diluted earnings per share $ 0.36 n/a(1) $ 0.77 n/a(1)
(1) Earnings per share calculations are not available (n/a) as the Company completed its stock conversion and became a public company on July 9, 2012.
KEY FINANCIAL RATIOS AND DATA At or For the Three Months Ended
(Dollars in thousands, except per share data) (Unaudited) June 30, March 31, June 30,
2013 2013 2012
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to average total assets) (2) 1.15% 1.37% 0.81%
Return on average equity (ratio of net income to average equity) (2) 7.17 8.29 8.91
Yield on average interest-earning assets 6.04 6.04 6.21
Rate paid on average interest-bearing liabilities 0.75 0.77 0.97
Interest rate spread information:
Average during period 5.29 5.27 5.24
Net interest margin (2) 5.47 5.45 5.39
Operating expense to average total assets (2) 5.94 4.94 5.00
Average interest-earning assets to average interest-bearing liabilities 131.15 129.43 114.34
Efficiency ratio (3) 71.33 64.49 76.64
At or For the Six Months Ended
June 30, June 30,
2013 2012
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to average total assets) (2) 1.26% 0.60%
Return on average equity (ratio of net income to average equity) (2) 7.72 6.50
Yield on average interest-earning assets 6.04 6.26
Rate paid on average interest-bearing liabilities 0.76 1.02
Interest rate spread information:
Average during period 5.28 5.23
Net interest margin (2) 5.46 5.42
Operating expense to average total assets (2) 5.45 4.97
Average interest-earning assets to average interest-bearing liabilities 130.31 113.94
Efficiency ratio (3) 68.12 79.09
June 30, March 31, June 30,
2013 2013 2012
ASSET QUALITY RATIOS AND DATA:
Non-performing assets to total assets at end of period (4) 1.10% 1.02% 1.38%
Non-performing loans to total gross loans (5) 0.80 0.63 0.70
Allowance for loan losses to non-performing loans (5) 229.99 284.49 249.25
Allowance for loan losses to gross loans receivable 1.85 1.79 1.74
CAPITAL RATIOS, BANK ONLY:
Tier 1 Leverage Capital 13.11% 13.19% 8.88%
Tier 1 Risk-Based Capital 15.66 14.79 10.02
Total Risk-Based Capital 16.91 16.04 11.27
CAPITAL RATIOS, COMPANY ONLY:
Tier 1 Leverage Capital 16.31% 16.50% n/a
Total Risk-Based Capital 20.74 19.76 n/a
BOOK VALUE:
Book value per common share $ 20.23(6) $ 20.22(7) n/a(1)
(1) Per share calculations are not available (n/a) as the Company completed its stock conversion and became a public company on July 9, 2012.
(2) Annualized.
(3) Total noninterest expense as a percentage of net interest income and total other noninterest income.
(4) 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.
(5) Non-performing loans consists of non-accruing loans and accruing loans more than 90 days past due.
(6) Book value per common share was calculated using all shares outstanding of 3,240,125 at June 30, 2013, less unallocated ESOP shares of 220,329.
(7) Book value per common share was calculated using all shares outstanding of 3,240,125 at March 31, 2013, less unallocated ESOP shares of 226,809.

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