Press Release

FS Bancorp, Inc. Reports $36.1 Million of Net Income or $4.56 Per Diluted Share for 2023 and a 4% Increase in its Quarterly Dividend to $0.26 Per Share

Company Release - 1/24/2024

MOUNTLAKE TERRACE, Wash., Jan. 24, 2024 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”), today reported 2023 net income of $36.1 million, or $4.56 per diluted share, compared to $29.6 million, or $3.70 per diluted share for 2022. Fourth quarter net income was $9.8 million, or $1.23 per diluted share, compared to $7.6 million, or $0.97 per diluted share, for the comparable quarter one year ago.

“Utilizing the Bank's highly diversified balance sheet, our team achieved our goal of producing strong financial results in varying rate and economic environments,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors increased and approved our forty-fourth consecutive quarterly cash dividend.  The quarterly dividend will be paid on February 22, 2024, to shareholders of record as of February 8, 2024,” concluded Adams.

“The integration of the seven retail branches acquired from Columbia State Bank in the first quarter of 2023, provided a framework for our balanced, focused growth throughout 2023,” noted Matthew Mullet, CFO.

2023 Fourth Quarter and Year End Highlights

  • Net income was $9.8 million for the fourth quarter of 2023, compared to $9.0 million in the previous quarter, and $7.6 million for the comparable quarter one year ago;

  • Our Board of Directors approved a $0.01 increase in the quarterly dividend to $0.26 per share, or $1.04 annually;

  • A closed branch in Centralia, Washington recorded as an other real estate owned (“OREO”) property in the fourth quarter of 2022 was sold in the fourth quarter of 2023 with a resulting gain of $148,000;

  • As of the fourth quarter of 2023, the Company has been negotiating to sell a portion of its mortgage servicing rights (“MSRs”).  The MSRs related to mortgages with Fannie Mae and Freddie Mac serviced loans with an aggregate principal balance of approximately $1.30 billion of its $2.83 billion total servicing portfolio.  In addition, the Company transferred $8.1 million of residential mortgage loan servicing rights to held for sale. The sale is projected to close in the first quarter of 2024;

  • Total deposits increased $67.9 million, or 2.8%, to $2.52 billion at December 31, 2023, compared to $2.45 billion at September 30, 2023, and increased $394.6 million, or 18.5%, from $2.13 billion at December 31, 2022, with noninterest-bearing deposit totals of $670.8 million at December 31, 2023, $670.2 million at September 30, 2023, and $554.2 million at December 31, 2022;

  • Loans receivable, net increased $25.9 million, or 1.1%, to $2.40 billion at December 31, 2023, compared to $2.38 billion at September 30, 2023, and increased $210.6 million, or 9.6% from $2.19 billion at December 31, 2022;

  • Consumer loans, of which 88.1% are home improvement loans, increased $6.7 million, or 1.0%, to $646.8 million at December 31, 2023, compared to $640.1 million in the previous quarter and increased $77.2 million, or 13.6% from $569.6 million in the comparable quarter one year ago. During the three months ended December 31, 2023, originations in the consumer portfolio included 77.3% of home improvement loans originated with a Fair Isaac and Company, Incorporated (“FICO”) score above 720 and 91.5% of home improvement loans with a UCC-2 security filing;

  • Segment reporting reflected net income of $10.0 million for the Commercial and Consumer Banking segment and a net loss of $254,000 for the Home Lending segment in the fourth quarter of 2023, compared to net income of $8.3 million and net loss of $684,000 in the fourth quarter of 2022, respectively;

  • The ratio of available unencumbered cash and secured borrowing capacity at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank to uninsured deposits was 224% at December 31, 2023, compared to 216% in the prior quarter. The average deposit size per FDIC-insured account at the Bank was $33,000 at both December 31, 2023 and September 30, 2023;

  • Regulatory capital ratios at the Bank were 13.4% for total risk-based capital and 10.4% for Tier 1 leverage capital at December 31, 2023, compared to 13.1% for total risk-based capital and 10.3% for Tier 1 leverage capital at September 30, 2023;

  • The return on average assets increased nine basis points to 1.27% for the year ended December 31, 2023 compared to 1.18% for the year ended December 31, 2022; and

  • The allowance for credit losses on loans (“ACLL”) to gross loans receivable increased to 1.30% at December 31, 2023, compared to 1.27% at September 30, 2023, and 1.26% at December 31, 2022.

Segment Reporting

The Company reports two segments: Commercial and Consumer Banking and Home Lending. The Commercial and Consumer Banking segment provides diversified financial products and services to our commercial and consumer customers. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. This segment is also responsible for the management of the investment portfolio and other assets of the Bank. The Home Lending segment originates one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as loans held for investment.

The tables below provide a summary of segment reporting at or for the three months and years ended December 31, 2023 and 2022 (dollars in thousands):

  At or For the Three Months Ended December 31, 2023  
Condensed income statement:   Commercial and Consumer Banking     Home Lending     Total  
Net interest income (1)   $ 28,405     $ 2,050     $ 30,455  
Provision for credit losses     (939 )     (463 )     (1,402 )
Noninterest income (2)     2,602       2,854       5,456  
Noninterest expense (3)     (17,668 )     (4,765 )     (22,433 )
Income (loss) before (provision) benefit for income taxes     12,400       (324 )     12,076  
(Provision) benefit for income taxes     (2,374 )     70       (2,304 )
Net income (loss)   $ 10,026     $ (254 )   $ 9,772  
Total average assets for period ended   $ 2,395,363     $ 548,002     $ 2,943,365  
Full-time employees ("FTEs")     447       123       570  


  At or For the Three Months Ended December 31, 2022  
Condensed income statement:   Commercial and Consumer Banking     Home Lending     Total  
Net interest income (1)   $ 26,375     $ 2,927     $ 29,302  
Provision for credit losses     (1,337 )     (248 )     (1,585 )
Noninterest income (2)     2,214       1,482       3,696  
Noninterest expense (3)     (16,845 )     (5,004 )     (21,849 )
Income (loss) before (provision) benefit for income taxes     10,407       (843 )     9,564  
(Provision) benefit for income taxes     (2,101 )     159       (1,942 )
Net income (loss)   $ 8,306     $ (684 )   $ 7,622  
Total average assets for period ended   $ 2,154,427     $ 457,315     $ 2,611,742  
FTEs     405       132       537  


  At or For the Year Ended December 31, 2023  
  Commercial          
  and Consumer          
Condensed income statement:   Banking     Home Lending     Total  
Net interest income (1)   $ 111,737     $ 11,566     $ 123,303  
Provision for credit losses     (3,494 )     (1,280 )     (4,774 )
Noninterest income (2)     10,368       10,122       20,490  
Noninterest expense (3)     (73,767 )     (19,980 )     (93,747 )
Income before provision for income taxes     44,844       428       45,272  
Provision for income taxes     (9,132 )     (87 )     (9,219 )
Net income   $ 35,712     $ 341     $ 36,053  
Total average assets for period ended   $ 2,315,806     $ 527,442     $ 2,843,248  
FTEs     447       123       570  


  At or For the Year Ended December 31, 2022  
  Commercial                
  and Consumer                
Condensed income statement:   Banking     Home Lending     Total  
Net interest income (1)   $ 93,358     $ 10,922     $ 104,280  
Provision for credit losses     (5,064 )     (1,153 )     (6,217 )
Noninterest income (2)     10,158       7,950       18,108  
Noninterest expense (3)     (59,723 )     (19,460 )     (79,183 )
Income (loss) before (provision) benefit for income taxes     38,729       (1,741 )     36,988  
(Provision) benefit for income taxes     (7,684 )     345       (7,339 )
Net income (loss)   $ 31,045     $ (1,396 )   $ 29,649  
Total average assets for period ended   $ 2,018,263     $ 417,431     $ 2,435,694  
FTEs     405       132       537  

________________________

(1)   Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of assigned liabilities to fund segment assets.
     
(2)   Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value, and subsequently transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of noninterest income. For the three months and year ended December 31, 2023, the Company recorded a net increase in fair value of $733,000 and $447,000, as compared to a net increase in fair value of $181,000 and a net decrease in fair value of $1.7 million for the three months and year ended December 31, 2022 , respectively.  As of December 31, 2023 and 2022, there were $15.1 million and $14.0 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from loans held for sale to loans held for investment.
     
(3)   Noninterest expense includes allocated overhead expense from general corporate activities. Allocation is determined based on a combination of segment assets and FTEs. For the three months and year ended December 31, 2023 and 2022, the Home Lending segment included allocated overhead expenses of $1.4 million and $1.5 million, respectively. For the year ended December 31, 2023 and 2022, the Home Lending segment included allocated overhead expenses of $6.1 million and $6.2 million, respectively.
     

Asset Summary

Total assets increased $52.6 million, or 1.8%, to $2.97 billion at December 31, 2023, compared to $2.92 billion at September 30, 2023, and increased $339.8 million, or 12.9%, from $2.63 billion at December 31, 2022.  The increase in total assets at December 31, 2023 compared to September 30, 2023 was primarily due to increases in securities available-for-sale (“AFS”) of $41.0 million, loans receivable, net of $25.9 million and loans held for sale (“HFS”) of $7.0 million, partially offset by decreases of $13.9 million in interest-bearing deposits at other financial institutions and $8.2 million in other assets.  The increase in securities AFS was attributable to purchases of variable and shorter duration securities, as well as increases in fair value due to improving market rates.  The increase in loans receivable, net was due to organic loan growth. The decrease in other assets was principally due to declines in the fair value of interest rate swaps.  The increase in total assets at December 31, 2023 compared to December 31, 2022 was primarily due to increases in loans receivable, net of $210.6 million, primarily due to organic loan growth which was primarily funded through deposits received from the purchase of seven retail branches from Columbia State Bank completed on February 24, 2023 (“Branch Acquisition”). The increase in total assets at December 31, 2023 compared to December 31, 2022 also included increase in securities available-for-sale of $63.7 million, total cash and cash equivalents of $24.3 million, certificates of deposit (“CDs”) at other financial institutions of $19.5 million, core deposit intangible (“CDI”), net of $14.0 million, loans HFS of $5.6 million, premises and equipment of $5.5 million, accrued interest receivable of $2.9 million, goodwill of $1.3 million, and other assets of $1.2 million.  These increases were partially offset by a decrease in FHLB stock of $8.5 million.

LOAN PORTFOLIO                                                
(Dollars in thousands)   December 31, 2023     September 30, 2023     December 31, 2022  
    Amount     Percent     Amount     Percent     Amount     Percent  
REAL ESTATE LOANS                                                
Commercial   $ 366,328       15.1 %   $ 364,673       15.2 %   $ 334,059       15.1 %
Construction and development     303,054       12.5       289,873       12.0       342,591       15.4  
Home equity     69,488       2.9       67,103       2.8       55,387       2.5  
One-to-four-family (excludes HFS)     567,742       23.3       540,670       22.5       469,485       21.2  
Multi-family     223,769       9.2       243,661       10.1       219,738       9.9  
Total real estate loans     1,530,381       63.0       1,505,980       62.6       1,421,260       64.1  
                                                 
CONSUMER LOANS                                                
Indirect home improvement     569,903       23.4       562,650       23.4       495,941       22.3  
Marine     73,310       3.0       73,887       3.1       70,567       3.2  
Other consumer     3,540       0.1       3,547       0.1       3,064       0.1  
Total consumer loans     646,753       26.5       640,084       26.6       569,572       25.6  
                                                 
COMMERCIAL BUSINESS LOANS                                                
Commercial and industrial     238,301       9.8       236,520       9.8       196,791       8.9  
Warehouse lending     17,580       0.7       23,489       1.0       31,229       1.4  
Total commercial business loans     255,881       10.5       260,009       10.8       228,020       10.3  
Total loans receivable, gross     2,433,015       100.0 %     2,406,073       100.0 %     2,218,852       100.0 %
                                                 
Allowance for credit losses on loans     (31,534 )             (30,501 )             (27,992 )        
Total loans receivable, net   $ 2,401,481             $ 2,375,572             $ 2,190,860          
                                                 

Loans receivable, net increased $25.9 million to $2.40 billion at December 31, 2023, from $2.38 billion at September 30, 2023, and increased $210.6 million from $2.19 billion at December 31, 2022. The increase in total real estate loans at December 31, 2023, compared to the prior quarter reflects increases in one-to-four-family loans (excluding loans HFS) of $27.1 million, construction and development loans of $13.2 million, home equity loans of $2.4 million, commercial real estate loans of $1.7 million and consumer loans of $7.0 million.  These increases were partially offset by a $19.9 million decrease in multi-family loans and a $4.1 million decrease in commercial business loans, primarily as a result of a $5.9 million decrease in warehouse lending.

A breakdown of commercial real estate (“CRE”) loans at the dates indicated were as follows:

(Dollars in thousands)                
    December 31, 2023   December 31, 2022
CRE by Type:   Amount   Amount
Agriculture   $ 3,799     $  
CRE Non-owner occupied:                
Office     42,739       44,757  
Retail     38,691       35,796  
Hospitality/restaurant     28,007       32,367  
Self storage     21,381       16,854  
Mixed use     19,331       16,646  
Industrial     16,978       21,013  
Senior housing/assisted living     8,505       8,685  
Other (1)     8,365       4,817  
Land     3,936       6,683  
Education/worship     2,620       2,717  
Total CRE non-owner occupied     190,553       190,335  
CRE owner occupied:                
Industrial     66,048       55,701  
Office     41,495       30,437  
Retail     22,020       20,622  
Hospitality/restaurant     11,065       12,259  
Other (2)     8,522       4,354  
Car wash     7,767       7,960  
Automobile related     7,530       8,086  
Education/worship     4,606       1,288  
Mixed use     2,923       3,017  
Total CRE owner occupied     171,976       143,724  
Total   $ 366,328     $ 334,059  

________________________

(1)   Primarily includes: mobile home park: $2.3 million and $2.4 million, other: $4.4 million and $1.5 million, RV park: $699,000 and $0.0, and automobile related: $608,000 and $0.0 for December 31, 2023 and 2022, respectively.
     
(2)   Primarily includes: other: $5.5 million and $3.1 million, gas stations: $1.7 million and $0.0, and non-profit: $922,000 and $948,000, for December 31, 2023 and 2022, respectively.
     

A breakdown of construction loans at the dates indicated were as follows:

(Dollars in thousands)                                
    December 31, 2023     December 31, 2022  
Construction Types:   Amount     Percent     Amount     Percent  
Commercial construction - office   $ 4,699       1.6 %   $ 2,009       0.6 %
Commercial construction - self storage     17,445       5.8       20,000       5.8  
Commercial construction - car wash     7,742       2.6       3,417       1.0  
Multi-family     56,065       18.5       75,254       22.0  
Custom construction - single family residential & single family manufactured residential     47,230       15.6       32,465       9.5  
Custom construction - land, lot and acquisition and development     6,377       2.1       5,438       1.6  
Speculative residential construction - vertical     131,336       43.3       164,368       48.0  
Speculative residential construction - land, lot and acquisition and development     32,160       10.6       39,640       11.6  
Total   $ 303,054       100.0 %   $ 342,591       100.0 %
                                 

Originations of one-to-four-family loans to purchase and to refinance a home for the periods indicated were as follows:

(Dollars in thousands)   For the Three Months Ended            
    December 31, 2023     September 30, 2023            
    Amount   Percent     Amount   Percent       $ Change     % Change  
Purchase   $ 110,458   90.7 %   $ 139,345   92.1 %   $ (28,887 )   (20.7 )%
Refinance     11,290   9.3       12,001   7.9       (711 )   (5.9 )
Total   $ 121,748   100.0 %   $ 151,346   100.0 %   $ (29,598 )   (19.6 )%


(Dollars in thousands)   For the Three Months Ended December 31,                  
    2023     2022                  
    Amount     Percent     Amount     Percent     $ Change     % Change  
Purchase   $ 110,458       90.7 %   $ 115,102       87.8 %   $ (4,644 )     (4.0 )%
Refinance     11,290       9.3       16,045       12.2       (4,755 )     (29.6 )
Total   $ 121,748       100.0 %   $ 131,147       100.0 %   $ (9,399 )     (7.2 )%


(Dollars in thousands)   For the Year Ended December 31,                  
    2023     2022                  
    Amount     Percent     Amount     Percent     $ Change     % Change  
Purchase   $ 497,669       91.6 %   $ 664,361       80.2 %   $ (166,692 )     (25.1 )%
Refinance     45,925       8.4       164,380       19.8       (118,455 )     (72.1 )
Total   $ 543,594       100.0 %   $ 828,741       100.0 %   $ (285,147 )     (34.4 )%
                                                 

The decrease in the origination of loans to purchase and refinance, compared to the comparable period in 2022, reflects the impact of higher market interest rates and low available housing inventory in our market areas.

During the quarter ended December 31, 2023, the Company sold $87.5 million of one-to-four-family loans compared to $117.6 million during the previous quarter and $76.2 million during the same quarter one year ago. Gross margins on home loan sales increased slightly to 3.09% for the quarter ended December 31, 2023, compared to 3.08% in the previous quarter and increased from 2.15% in the same quarter one year ago. Gross margins are defined as the margin on loans sold (cash sales) without the impact of deferred costs.

Liabilities and Equity Summary

Changes in deposits at the dates indicated are as follows:

(Dollars in thousands)                                                
    December 31, 2023     September 30, 2023                  
Transactional deposits:   Amount     Percent     Amount     Percent     $ Change     % Change  
Noninterest-bearing checking   $ 654,048       25.9 %   $ 643,670       26.2 %   $ 10,378       1.6 %
Interest-bearing checking (1)     244,028       9.7       219,469       8.9       24,559       11.2  
Escrow accounts related to mortgages serviced (2)     16,783       0.7       26,488       1.1       (9,705 )     (36.6 )
Subtotal     914,859       36.3       889,627       36.2       25,232       2.8  
Savings     151,630       6.0       157,901       6.4       (6,271 )     (4.0 )
Money market (3)     359,063       14.2       389,962       15.9       (30,899 )     (7.9 )
Subtotal     510,693       20.2       547,863       22.3       (37,170 )     (6.8 )
Certificates of deposit less than $100,000 (4)     587,858       23.3       527,032       21.5       60,826       11.5  
Certificates of deposit of $100,000 through $250,000     429,373       17.0       406,545       16.6       22,828       5.6  
Certificates of deposit of $250,000 and over     79,540       3.2       83,377       3.4       (3,837 )     (4.6 )
Subtotal     1,096,771       43.5       1,016,954       41.5       79,817       7.8  
Total   $ 2,522,323       100.0 %   $ 2,454,444       100.0 %   $ 67,879       2.8 %
                                                 


(Dollars in thousands)                                                
    December 31, 2023     December 31, 2022                  
Transactional deposits:   Amount     Percent     Amount     Percent     $ Change     % Change  
Noninterest-bearing checking   $ 654,048       25.9 %   $ 537,938       25.3 %   $ 116,110       21.6 %
Interest-bearing checking (1)     244,028       9.7       135,127       6.3       108,901       80.6  
Escrow accounts related to mortgages serviced (2)     16,783       0.7       16,236       0.8       547       3.4  
Subtotal     914,859       36.3       689,301       32.4       225,558       32.7  
Savings     151,630       6.0       134,358       6.3       17,272       12.9  
Money market (3)     359,063       14.2       574,290       27.0       (215,227 )     (37.5 )
Subtotal     510,693       20.2       708,648       33.3       (197,955 )     (27.9 )
Certificates of deposit less than $100,000 (4)     587,858       23.3       440,785       20.7       147,073       33.4  
Certificates of deposit of $100,000 through $250,000     429,373       17.0       195,447       9.2       233,926       119.7  
Certificates of deposit of $250,000 and over     79,540       3.2       93,560       4.4       (14,020 )     (15.0 )
Subtotal     1,096,771       43.5       729,792       34.3       366,979       50.3  
Total   $ 2,522,323       100.0 %   $ 2,127,741       100.0 %   $ 394,582       18.5 %

_______________________

(1)   Includes $70.2 million, $50.1 million, and $2.3 million of brokered deposits at December 31, 2023, September 30, 2023 and December 31, 2022, respectively.
(2)   Noninterest-bearing accounts.
(3)   Includes $1,000, $51,000, and $59.7 million of brokered deposits at December 31, 2023, September 30, 2023 and December 31, 2022, respectively.
(4)   Includes $361.3 million, $323.3 million, and $332.0 million of brokered deposits at December 31, 2023, September 30, 2023 and December 31, 2022, respectively.
     

At December 31, 2023, CDs, which include retail and nonretail CDs, totaled $1.10 billion, compared to $1.02 billion at September 30, 2023, and $729.8 million at December 31, 2022, with nonretail CDs representing 34.2%, 33.2% and 49.3% of total CDs at such dates, respectively.  At December 31, 2023, nonretail CDs, which include brokered CDs, online CDs, and public funds CDs, increased $37.3 million to $374.5 million, compared to $337.2 million at September 30, 2023, primarily due to an increase of $38.0 million in brokered CDs. Nonretail CDs totaled $374.5 million at December 31, 2023, compared to $359.6 million at December 31, 2022.

At December 31, 2023, the Bank had uninsured deposits of approximately $606.5 million, compared to approximately $591.6 million in September 30, 2023, and approximately $560.0 million at December 31, 2022.  The uninsured amounts are estimated based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

At December 31, 2023, borrowings totaled $93.7 million and were comprised of advances from the Federal Reserve Bank's Term Funding Program of $89.9 million and FHLB fixed-rate advances of $3.9 million.  Borrowings decreased $28.1 million to $93.7 million at December 31, 2023, from $121.9 million at September 30, 2023, and decreased $92.8 million, from $186.5 million at December 31, 2022. The decrease was partially attributable to a shift in funding mix from overnight borrowings to wholesale brokered CDs, as well as liquidity from the Branch Acquisition utilized to pay down borrowings and brokered deposits.

Total stockholders’ equity increased $13.8 million, to $264.5 million at December 31, 2023, from $250.7 million at September 30, 2023, and increased $32.8 million from $231.7 million at December 31, 2022. The increase in stockholders’ equity at December 31, 2023, compared to September 30, 2023, reflects net income of $9.8 million, partially offset by dividends paid of $2.0 million. In addition, stockholders’ equity was positively impacted by unrealized net gains in securities available-for-sale of $12.7 million, net of tax, partially offset by unrealized net losses on interest rate swaps of $6.6 million, net of tax, reflecting changes in market interest rates during the quarter, resulting in a $6.1 million net decrease in accumulated other comprehensive loss. Book value per common share was $34.36 at December 31, 2023, compared to $32.58 at September 30, 2023, and $30.42 at December 31, 2022.

The Bank is considered well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation (“FDIC”) with a total risk-based capital ratio of 13.4%, a Tier 1 leverage capital ratio of 10.4%, and a common equity Tier 1 (“CET1”) capital ratio of 12.1% at December 31, 2023.

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 13.7%, a Tier 1 leverage capital ratio of 9.0%, and a CET1 ratio of 10.5% at December 31, 2023.

Credit Quality

The ACLL totaled to $31.5 million, or 1.30% of gross loans receivable (excluding loans HFS) at December 31, 2023, compared to $30.5 million, or 1.27% of gross loans receivable (excluding loans HFS) at September 30, 2023, and $28.0 million, or 1.26% of gross loans receivable (excluding loans HFS) at December 31, 2022. The $1.0 million increase in the ACLL at December 31, 2023, compared to the prior quarter was primarily due to an increase in total loans and the increase in nonperforming loans. The $3.5 million increase in the ACLL at December 31, 2023, from the prior year, was primarily due to organic loan growth, increases in nonperforming loans, and the addition of loans acquired in the Branch Acquisition. The allowance for credit losses on unfunded loan commitments decreased $266,000 to $1.5 million at December 31, 2023, compared to $1.8 million at September 30, 2023, and decreased $1.0 million from $2.5 million at December 31, 2022. The decrease in allowance for unfunded loan commitments was primarily attributable to a decrease in unfunded construction loan commitments.

Nonperforming loans increased $5.3 million to $11.0 million at December 31, 2023, from $5.6 million at September 30, 2023, and increased $2.3 million from $8.7 million at December 31, 2022. The increase in nonperforming loans at December 31, 2023, from the prior quarter was primarily due to the addition of one nonperforming construction and development loan (owner occupied commercial space) of $4.7 million and an increase in commercial business loans of $569,000.  The increase in nonperforming loans compared to the prior year was primarily due to the one nonperforming construction and development loan of $4.7 million mentioned above and the addition of a commercial real estate loan of $1.1 million, partially offset by a decrease in commercial business loans of $3.7 million primarily attributable to a $3.5 million commercial business loan being upgraded to performing from nonperforming status.   

Loans classified as substandard or worse increased $5.7 million to $24.9 million at December 31, 2023, compared to $19.2 million at September 30, 2023, and increased $4.7 million from $20.2 million at December 31, 2022. The increase in substandard loans at December 31, 2023, compared to the prior quarter was primarily attributable to increases of $4.7 million in construction and development loans and $327,000 in commercial real estate loans, and compared to the prior year was primarily due to increases of $4.7 million in construction and development loans and $787,000 in indirect home improvement loans, partially offset by a decrease of $1.5 million in commercial real estate loans. There was no other real estate owned (“OREO”) property at December 31, 2023, and one OREO property (a closed branch at Centralia, Washington) in the amount of $570,000 at both September 30, 2023, and at December 31, 2022.

Operating Results

Net interest income increased $1.2 million to $30.5 million for the three months ended December 31, 2023, from $29.3 million for the three months ended December 31, 2022, primarily as a result of an increase in interest income on loans receivable, including fees. Total interest income for the three months ended December 31, 2023, increased $8.6 million compared to the same period last year, primarily due to an increase of $7.1 million in interest income on loans receivable, including fees, impacted primarily as a result new loans being originated at higher rates and variable rate loans repricing higher following increases in market interest rates. Total interest expense increased $7.5 million to $14.0 million for the three months ended December 31, 2023, compared to the same period last year, primarily as a result of higher market interest rates, higher utilization of borrowings and a shift in deposit mix from transactional accounts to higher cost CDs.

For the year ended December 31, 2023, net interest income increased $19.0 million to $123.3 million, from $104.3 million for the year ended December 31, 2022 for the same reasons described above for the three-month comparison, with an increase in total interest income of $48.5 million and an increase in interest expense of $29.5 million.

NIM decreased 38 basis points to 4.24% for the three months ended December 31, 2023, from 4.62% for the same period in the prior year, and increased two basis points to 4.48% for the year ended December 31, 2023, from 4.46% for the year ended December 31, 2022. The changes in NIM for both the three months and year ended December 31, 2023, compared to the same period in 2022, reflects new loan originations at higher market interest rates, variable rate interest-earning assets repricing higher following increases in market interest rates, offset by the rising cost of deposits and borrowings. The benefit from higher rates and interest earning assets were offset by rising deposit and borrowing costs. Increases in average balances of higher costing CDs and borrowings placed additional pressure on the NIM, which resulted in a decrease for the three months ended December 31, 2023, compared to the same period in 2022.

The average total cost of funds, including noninterest-bearing checking, increased 98 basis points to 2.10% for the three months ended December 31, 2023, from 1.12% for the three months ended December 31, 2022. This increase was predominantly due to the rise in cost for market rates for deposits. The average total cost of funds increased 105 basis points to 1.72% for the year ended December 31, 2023, from 0.67% for the year ended December 31, 2022, also reflecting increases in market interest rates over last year. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three months and year ended December 31, 2023, the provision for credit losses on loans was $1.7 million and $5.8 million, respectively, compared to $1.6 million and $6.2 million, respectively for the three months and year ended December 31, 2022. The provision for credit losses on loans reflects an increase in total loans receivable, an increase in nonperforming loans, and net charge-offs in indirect home improvement and marine loans.

During the three months ended December 31, 2023, net charge-offs totaled $635,000, compared to $564,000 for the same period last year, primarily due to increased net charge-offs of $290,000 in indirect home improvement loans and $5,000 in deposit overdrafts, partially offset by decreases of $214,000 in marine loans and $10,000 in other loans. Net charge-offs totaled $2.2 million during the year ended December 31, 2023, compared to $1.4 million during the year ended December 31, 2022. This increase was primarily due to net charge-off increases of $1.3 million in indirect home improvement loans, partially offset by a net decrease of $395,000 in deposit overdraft charge-offs. Management attributes the increase in net charge-offs over the year primarily to higher balances of indirect consumer loans and volatile economic conditions.

Noninterest income increased $1.8 million, to $5.5 million, for the three months ended December 31, 2023, from $3.7 million for the three months ended December 31, 2022. The increase reflects an $821,000 increase in gain on sale of loans, a $540,000 increase in other noninterest income and a $382,000 increase in service charges and fee income. Noninterest income increased $2.4 million to $20.5 million for the year ended December 31, 2023, from $18.1 million for the year ended December 31, 2022. This increase was primarily the result of a $2.6 million increase in service charges and fee income and a $931,000 increase in other noninterest income, partially offset by a decrease of $1.2 million in gain on sale of loans. The increase in service charges and fee income was primarily due to a reduction in servicing rights amortization as a result of fewer prepayments, and an increase in deposit fee income attributable to deposits acquired in the Branch Acquisition.  The increase in other noninterest income was primarily due to increases in fair value for loans evaluated under the fair value option.

Noninterest expense increased $584,000 to $22.4 million for the three months ended December 31, 2023, from $21.8 million for the three months ended December 31, 2022. The increase in noninterest expense was primarily a result of increases of $807,000 in amortization of core deposit intangible, $368,000 in occupancy, $240,000 in FDIC insurance, $239,000 in operations and $220,000 in salaries and benefits. These increases were partially offset by decreases of $898,000 in acquisition costs and $201,000 in loan costs, and a gain on sale of OREO of $148,000. Noninterest expense increased $14.6 million, to $93.7 million for the year ended December 31, 2023, from $79.2 million for the year ended December 31, 2022. Increases during the year ended December 31, 2023, as compared to the same period last year included $6.0 million in salaries and benefits, $2.8 million in amortization of core deposit intangible, $2.3 million in operations, $1.2 million in occupancy, and $1.2 million in FDIC insurance.  The increases in noninterest expense for both the current quarter and 2023 year end, compared to the same periods the prior year were primarily related to the Branch Acquisition.

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 Washington and Oregon through its 27 Bank branches, one headquarters office that produces loans and accepts deposits, and loan production offices in various suburban communities in the greater Puget Sound area, the Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, and in Vancouver, Washington. The Bank services home mortgage customers throughout the Northwest predominantly in Washington State including the Puget Sound, Tri-Cities and Vancouver 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 the Company’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels; labor shortages, the effects of inflation, a potential recession or slowed economic growth; changes in the interest rate environment, including the past increases in the Federal Reserve benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity; the impact of  continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; increased competitive pressures, changes in the interest rate environment, adverse changes in the securities markets, the Company’s ability to successfully realize the anticipated benefits of the Branch Acquisition, including customer acquisition and retention; 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; challenges arising from expanding into new geographic markets, products, or services; secondary market conditions for loans and the Company’s ability to originate loans for sale and sell loans in the secondary market; volatility in the mortgage industry; fluctuations in deposits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; legislative and regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for us; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; and other factors described in the Company’s latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other reports filed with or furnished to 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 by the Company. 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 disclaims 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 2024 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  
    December 31,     September 30,     December 31,     Quarter     Over Year  
    2023     2023     2022     % Change     % Change  
ASSETS                                        
Cash and due from banks   $ 17,083     $ 18,137     $ 10,525       (6 )     62  
Interest-bearing deposits at other financial institutions     48,608       62,536       30,912       (22 )     57  
Total cash and cash equivalents     65,691       80,673       41,437       (19 )     59  
Certificates of deposit at other financial institutions     24,167       17,636       4,712       37       413  
Securities available-for-sale, at fair value     292,933       251,917       229,252       16       28  
Securities held-to-maturity, net     8,455       8,455       8,469             NM  
Loans held for sale, at fair value     25,668       18,636       20,093       38       28  
Loans receivable, net     2,401,481       2,375,572       2,190,860       1       10  
Accrued interest receivable     14,005       13,925       11,144       1       26  
Premises and equipment, net     30,578       30,926       25,119       (1 )     22  
Operating lease right-of-use     6,627       7,042       6,226       (6 )     6  
Federal Home Loan Bank stock, at cost     2,114       3,696       10,611       (43 )     (80 )
Other real estate owned           570       570       (100 )     (100 )
Deferred tax asset, net     6,725       7,424       6,670       (9 )     1  
Bank owned life insurance (“BOLI”), net     37,719       37,480       36,799       1       3  
Servicing rights, held at the lower of cost or fair value     9,090       17,657       18,017       (49 )     (50 )
Servicing rights held for sale, held at the lower of cost or fair value     8,086                   NM       NM  
Goodwill     3,592       3,592       2,312             55  
Core deposit intangible, net     17,343       18,323       3,369       (5 )     415  
Other assets     18,395       26,548       17,240       (31 )     7  
TOTAL ASSETS   $ 2,972,669     $ 2,920,072     $ 2,632,900       2       13  
LIABILITIES                                        
Deposits:                                        
Noninterest-bearing accounts   $ 670,831     $ 670,158     $ 554,174       NM       21  
Interest-bearing accounts     1,851,492       1,784,286       1,573,567       4       18  
Total deposits     2,522,323       2,454,444       2,127,741       3       19  
Borrowings     93,746       121,895       186,528       (23 )     (50 )
Subordinated notes:                                        
Principal amount     50,000       50,000       50,000              
Unamortized debt issuance costs     (473 )     (489 )     (539 )     (3 )     (12 )
Total subordinated notes less unamortized debt issuance costs     49,527       49,511       49,461       NM       NM  
Operating lease liability     6,848       7,269       6,474       (6 )     6  
Other liabilities     35,737       36,288       30,999       (2 )     15  
Total liabilities     2,708,181       2,669,407       2,401,203       1       13  
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; 7,800,545 shares issued and outstanding at December 31, 2023, 7,796,095 at September 30, 2023, and 7,736,185 at December 31, 2022     78       78       77             1  
Additional paid-in capital     57,362       57,464       55,187       NM       4  
Retained earnings     230,354       222,532       202,065       4       14  
Accumulated other comprehensive loss, net of tax     (23,306 )     (29,409 )     (25,632 )     (21 )     (9 )
Total stockholders’ equity     264,488       250,665       231,697       6       14  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 2,972,669     $ 2,920,072     $ 2,632,900       2       13  
                                         


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
    Three Months Ended     Qtr     Year  
    December 31,     September 30,     December 31,     Over Qtr     Over Year  
    2023     2023     2022     % Change     % Change  
INTEREST INCOME                                        
Loans receivable, including fees   $ 40,863     $ 39,874     $ 33,763       2       21  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions     3,580       3,396       2,056       5       74  
Total interest and dividend income     44,443       43,270       35,819       3       24  
INTEREST EXPENSE                                        
Deposits     12,055       10,462       3,982       15       203  
Borrowings     1,447       1,689       2,049       (14 )     (29 )
Subordinated notes     486       485       486              
Total interest expense     13,988       12,636       6,517       11       115  
NET INTEREST INCOME     30,455       30,634       29,302       (1 )     4  
PROVISION FOR CREDIT LOSSES     1,402       548       1,585       156       (12 )
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES     29,053       30,086       27,717       (3 )     5  
NONINTEREST INCOME                                        
Service charges and fee income     2,786       2,882       2,404       (3 )     16  
Gain on sale of loans     1,413       1,875       592       (25 )     139  
Earnings on cash surrender value of BOLI     239       233       222       3       8  
Other noninterest income     1,018       (8 )     478     NM       113  
Total noninterest income     5,456       4,982       3,696       10       48  
NONINTEREST EXPENSE                                        
Salaries and benefits     12,742       13,503       12,522       (6 )     2  
Operations     3,326       3,409       3,087       (2 )     8  
Occupancy     1,708       1,588       1,340       8       27  
Data processing     1,760       1,841       1,699       (4 )     4  
Gain on sale of OREO     (148 )               NM     NM  
Loan costs     497       564       698       (12 )     (29 )
Professional and board fees     583       666       767       (12 )     (24 )
Federal Deposit Insurance Corporation (“FDIC”) insurance     660       561       420       18       57  
Marketing and advertising     277       452       245       (39 )     13  
Acquisition costs                 898             (100 )
Amortization of core deposit intangible     980       1,002       173       (2 )     466  
Impairment of servicing rights     48                 NM     NM  
Total noninterest expense     22,433       23,586       21,849       (5 )     3  
INCOME BEFORE PROVISION FOR INCOME TAXES     12,076       11,482       9,564       5       26  
PROVISION FOR INCOME TAXES     2,304       2,529       1,942       (9 )     19  
NET INCOME   $ 9,772     $ 8,953     $ 7,622       9       28  
Basic earnings per share   $ 1.25     $ 1.15     $ 0.98       9       28  
Diluted earnings per share   $ 1.23     $ 1.13     $ 0.97       9       27  
                                         


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
    Year Ended     Year  
    December 31,     December 31,     Over Year  
    2023     2022     % Change  
INTEREST INCOME                        
Loans receivable, including fees   $ 154,945     $ 111,648       39  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions     12,247       7,046       74  
Total interest and dividend income     167,192       118,694       41  
INTEREST EXPENSE                        
Deposits     36,751       9,420       290  
Borrowings     5,196       3,052       70  
Subordinated note     1,942       1,942        
Total interest expense     43,889       14,414       204  
NET INTEREST INCOME     123,303       104,280       18  
PROVISION FOR CREDIT LOSSES     4,774       6,217       (23 )
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES     118,529       98,063       21  
NONINTEREST INCOME                        
Service charges and fee income     11,138       8,525       31  
Gain on sale of loans     6,711       7,917       (15 )
Earnings on cash surrender value of BOLI     920       876       5  
Other noninterest income     1,721       790       118  
Total noninterest income     20,490       18,108       13  
NONINTEREST EXPENSE                        
Salaries and benefits     53,622       47,632       13  
Operations     13,070       10,743       22  
Occupancy     6,378       5,165       23  
Data processing     6,852       6,062       13  
Gain on sale of OREO     (148 )           NM  
Loan costs     2,574       2,718       (5 )
Professional and board fees     2,584       3,154       (18 )
FDIC insurance     2,392       1,224       95  
Marketing and advertising     1,349       897       50  
Acquisition costs     1,562       898       74  
Amortization of core deposit intangible     3,464       691       401  
Impairment (recovery) of servicing rights     48       (1 )     (4,900 )
Total noninterest expense     93,747       79,183       18  
INCOME BEFORE PROVISION FOR INCOME TAXES     45,272       36,988       22  
PROVISION FOR INCOME TAXES     9,219       7,339       26  
NET INCOME   $ 36,053     $ 29,649       22  
Basic earnings per share   $ 4.63     $ 3.75       23  
Diluted earnings per share   $ 4.56     $ 3.70       23  
                         

KEY FINANCIAL RATIOS AND DATA (Unaudited)

    For the Three Months Ended  
    December 31,     September 30,     December 31,  
PERFORMANCE RATIOS:   2023     2023     2022  
Return on assets (ratio of net income to average total assets) (1)     1.32 %     1.22 %     1.17 %
Return on equity (ratio of net income to average equity) (1)     15.01       13.81       13.32  
Yield on average interest-earning assets (1)     6.19       6.13       5.65  
Average total cost of funds (1)     2.10       1.92       1.12  
Interest rate spread information – average during period     4.09       4.21       4.53  
Net interest margin (1)     4.24       4.34       4.62  
Operating expense to average total assets (1)     3.02       3.23       3.36  
Average interest-earning assets to average interest-bearing liabilities (1)     143.45       145.14       142.94  
Efficiency ratio (2)     62.47       66.22       66.21  
Common equity ratio (ratio of stockholders' equity to total assets)     8.90       8.58       8.80  
Tangible common equity ratio (3)     8.25       7.89       8.60  


    For the Year Ended  
    December 31,     December 31,  
PERFORMANCE RATIOS:   2023     2022  
Return on assets (ratio of net income to average total assets)     1.27 %     1.18 %
Return on equity (ratio of net income to average equity)     14.36       12.71  
Yield on average interest-earning assets     6.07       5.07  
Average total cost of funds     1.72       0.67  
Interest rate spread information – average during period     4.36       4.40  
Net interest margin     4.48       4.46  
Operating expense to average total assets     3.30       3.15  
Average interest-earning assets to average interest-bearing liabilities     145.50       149.09  
Efficiency ratio (2)     65.20       64.70  


    December 31,     September 30,     December 31,  
ASSET QUALITY RATIOS AND DATA:   2023     2023     2022  
Nonperforming assets to total assets at end of period (4)     0.37 %     0.21 %     0.35 %
Nonperforming loans to total gross loans (excluding loans held for sale) (5)     0.45       0.23       0.39  
Allowance for credit losses - loans to nonperforming loans (5)     288.11       493.46       303.50  
Allowance for credit losses - loans to gross loans receivable (excluding loans held for sale)     1.30       1.27       1.26  


    At or For the Three Months Ended  
    December 31,     September 30,     December 31,  
PER COMMON SHARE DATA:   2023     2023     2022  
Basic earnings per share   $ 1.25     $ 1.15     $ 0.98  
Diluted earnings per share   $ 1.23     $ 1.13     $ 0.97  
Weighted average basic shares outstanding     7,696,429       7,667,981       7,597,260  
Weighted average diluted shares outstanding     7,795,383       7,780,430       7,712,498  
Common shares outstanding at end of period     7,698,401 (6)     7,693,951 (7)     7,617,655 (8)
Book value per share using common shares outstanding   $ 34.36     $ 32.58     $ 30.42  
Tangible book value per share using common shares outstanding (9)   $ 31.64     $ 29.73     $ 29.67  

 ____________________________

(1)   Annualized.
(2)   Total noninterest expense as a percentage of net interest income and total noninterest income.
(3)   Tangible common equity ratio excludes intangible assets.  This ratio represents a non-GAAP financial measure.  See “Non-GAAP Financial Measures” below.
(4)   Nonperforming assets consist of nonperforming loans (which include nonaccruing loans and accruing loans more than 90 days past due), foreclosed real estate and other repossessed assets.
(5)   Nonperforming loans consist of nonaccruing loans and accruing loans 90 days or more past due.
(6)   Common shares were calculated using shares outstanding of 7,800,545 at December 31, 2023, less 102,144 unvested restricted stock shares.
(7)   Common shares were calculated using shares outstanding of 7,796,095 at September 30, 2023, less 102,144 unvested restricted stock shares.
(8)   Common shares were calculated using shares outstanding of 7,736,185 at December 31, 2022, less 118,530 unvested restricted stock shares.
(9)   Tangible book value per share using outstanding common shares excludes intangible assets. This ratio represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” below.


(Dollars in thousands)   For the Three Months Ended December 31,     For the Year Ended December 31,     QTR Over QTR     Year Over Year  
Average Balances   2023     2022     2023     2022     $ Change     $ Change  
Assets                                                
Loans receivable (1)   $ 2,448,946     $ 2,194,173     $ 2,384,577     $ 2,014,017     $ 254,773     $ 370,560  
Securities available-for-sale, at fair value     321,735       274,255       288,152       278,099       47,480       10,053  
Securities held-to-maturity     8,500       8,500       8,500       8,084             416  
Interest-bearing deposits and certificates of deposit at other financial institutions     66,769       11,729       67,063       7,231       55,040       59,832  
FHLB stock, at cost     3,403       26,706       4,740       32,689       (23,303 )     (27,949 )
Total interest-earning assets     2,849,353       2,515,363       2,753,032       2,340,120       333,990       412,912  
Noninterest-earning assets     94,012       96,379       90,216       95,574       (2,367 )     (5,358 )
Total assets   $ 2,943,365     $ 2,611,742     $ 2,843,248     $ 2,435,694     $ 331,623     $ 407,554  
Liabilities                                                
Interest-bearing accounts   $ 1,817,369     $ 1,495,841     $ 1,732,342     $ 1,417,561     $ 321,528     $ 314,781  
Borrowings     119,451       214,488       110,328       102,571       (95,037 )     7,757  
Subordinated notes     49,517       49,450       49,492       49,425       67       67  
Total interest-bearing liabilities     1,986,337       1,759,779       1,892,162       1,569,557       226,558       322,605  
Noninterest-bearing accounts     659,080       555,622       662,998       579,968       103,458       83,030  
Other noninterest-bearing liabilities     39,651       33,775       36,992       31,955       5,876       5,037  
Total liabilities   $ 2,685,068     $ 2,349,176     $ 2,592,152     $ 2,181,480     $ 335,892     $ 410,672  

____________________________
(1) Includes loans HFS.

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 presents non-GAAP financial measures that include tangible book value per share and tangible common equity ratio.  Management believes that providing the Company’s tangible book value per share and tangible common equity ratio is consistent with the capital treatment utilized by the investment community, which excludes intangible assets from the calculation of risk-based capital ratios and facilitates comparison of the quality and composition of the Company's capital over time and in comparison to its competitors.  Where applicable, the Company has also presented comparable GAAP information.

These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. They should not be considered in isolation or as a substitute for total stockholders' equity or operating results determined in accordance with GAAP.  These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

Reconciliation of the GAAP book value per share and common equity ratio and the non-GAAP tangible book value per share and tangible common equity ratio is presented below.

(Dollars in thousands, except share and per share amounts)   December 31,     September 30,     December 31,  
Tangible Book Value Per Share:   2023     2023     2022  
Stockholders' equity (GAAP)   $ 264,488     $ 250,665     $ 231,697  
Less: goodwill and core deposit intangible, net     (20,935 )     (21,915 )     (5,681 )
Tangible common stockholders' equity (non-GAAP)   $ 243,553     $ 228,750     $ 226,016  
                         
Common shares outstanding at end of period     7,698,401       7,693,951       7,617,655  
                         
Book value per share (GAAP)   $ 34.36     $ 32.58     $ 30.42  
Tangible book value per share (non-GAAP)   $ 31.64     $ 29.73     $ 29.67  
                         
Tangible Common Equity Ratio:                        
Total assets (GAAP)   $ 2,972,669     $ 2,920,072     $ 2,632,898  
Less: goodwill and core deposit intangible assets     (20,935 )     (21,915 )     (5,681 )
Tangible assets (non-GAAP)   $ 2,951,734     $ 2,898,157     $ 2,627,217  
                         
Common equity ratio (GAAP)     8.90 %     8.58 %     8.80  
Tangible common equity ratio (non-GAAP)     8.25       7.89       8.60  
                         

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


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Source: FS Bancorp, Inc.

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