Press Release

FS Bancorp, Inc. Reports First Quarter Net Income of $8.4 Million or $1.06 Per Diluted Share and Its Board of Directors Declares Forty-Fifth Consecutive Quarterly Dividend

Company Release - 4/24/2024

MOUNTLAKE TERRACE, Wash., April 24, 2024 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank” or “1st Security Bank”) today reported 2024 first quarter net income of $8.4 million, or $1.06 per diluted share, compared to $8.2 million, or $1.04 per diluted share, for the comparable quarter one year ago. 

“We are proud to report a $1.83 increase in our tangible book value per share, a stabilization of our net interest margin, and our continued focus on growing our award-winning culture during the first quarter,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our forty-fifth consecutive quarterly cash dividend of $0.26 per share, demonstrating our continued commitment to enhancing shareholder value.  The cash dividend will be paid on May 23, 2024, to shareholders of record as of May 9, 2024,” concluded Adams.

2024 First Quarter Highlights

  • Net income was $8.4 million for the first quarter of 2024, compared to $9.8 million in the previous quarter, and $8.2 million for the comparable quarter one year ago;

  • As an investment strategy to mitigate realized investment losses noted below, during the first quarter of 2024, the Company sold a portion of its mortgage servicing rights (“MSRs”) resulting in a pre-tax gain of $8.2 million. The MSRs related to mortgages with Fannie Mae and Freddie Mac serviced loans with an aggregate principal balance of approximately $1.29 billion;

  • Offsetting the gain noted above, the Company sold longer duration investment securities with amortized cost of $52.0 million in the first quarter of 2024, resulting in an $8.0 million pre-tax loss. The proceeds were utilized to purchase securities and other liquid assets;

  • Net interest margin (“NIM”) expanded to 4.26% for the first quarter of 2024, compared to 4.24% in the previous quarter, and compressed from 4.70% for the comparable quarter one year ago;

  • Loans receivable, net increased $13.9 million, or 0.6%, to $2.42 billion at March 31, 2024, compared to $2.40 billion at December 31, 2023, and increased $115.7 million, or 5.0%, from $2.30 billion at March 31, 2023;

  • Consumer loans, of which 88.0% are home improvement loans, were relatively static in the first quarter of 2024 with a total of $646.1 million at March 31, 2024, compared to $646.8 million in the previous quarter, and increased $39.5 million, or 6.5%, from $606.7 million in the comparable quarter one year ago. Yields on consumer loans improved 0.17% to 7.22% from 7.05% at the end of the fourth quarter 2023. During the three months ended March 31, 2024, consumer loan originations included 74.1% of home improvement loans originated with a Fair Isaac Corporation (“FICO”) score above 720 and 86.4% of home improvement loans with a UCC-2 security filing;

  • The allowance for credit losses on loans (“ACLL”) was $31.5 million, or 1.29% of gross loans receivable at March 31, 2024, compared to $31.5 million, or 1.30% at December 31, 2023, and $29.9 million, or 1.29% at March 31, 2023;

  • Total deposits decreased $57.0 million, or 2.3%, to $2.47 billion at March 31, 2024 compared to $2.52 billion at December 31, 2023 and increased $22.0 million, or 0.9%, from $2.44 billion at March 31, 2023. Noninterest-bearing deposits were $646.9 million at March 31, 2024, $670.8 million at December 31, 2023, and $746.9 million at March 31, 2023;

  • Total deposits, excluding brokered deposits, increased $35.2 million for the three months ended March 31, 2024, compared to $9.8 million of growth in the prior quarter, and $8.2 million of growth in the first quarter of 2023 (less acquired deposits from the acquisition of seven bank branches from Columbia State Bank in the first quarter of 2023). See “Non-GAAP Financial Measures;”

  • Segment reporting in the first quarter of 2024 reflected net income of $8.2 million for the Commercial and Consumer Banking segment and $246,000 for the Home Lending segment, compared to net income of $10.0 million and a net loss of $254,000 in the prior quarter, and net income of $7.3 million and $873,000 in the first quarter of 2023, respectively. The gain on sale of MSRs and offsetting loss on sale of investment securities were allocated to the Commercial and Consumer Banking segment;

  • The percentage of available unencumbered cash and secured borrowing capacity at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank to uninsured deposits was 223% at March 31, 2024, compared to 224% in the prior quarter. The average deposit size per FDIC-insured account at the Bank was $33,000 for both March 31, 2024 and December 31, 2023;

  • Regulatory capital ratios at the Bank were 13.7% for total risk-based capital and 10.6% for Tier 1 leverage capital at March 31, 2024, compared to 13.4% for total risk-based capital and 10.4% for Tier 1 leverage capital at December 31, 2023; and

  • Tangible book value per share increased $1.83 to $33.47 at March 31, 2024, compared to $31.64 at December 31, 2023, and increased $4.92 from $28.55 at March 31, 2023. See, “Non-GAAP Financial Measures.”

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 Company reflected the sale of servicing rights as a gain to the Commercial and Consumer Bank segment to offset the realized loss on investment securities and, over the next 48 months, will allocate the gain as intercompany income from the Commercial and Consumer Banking segment to the Home Lending segment on a straight-line basis.

The tables below provide a summary of segment reporting at or for the three months ended March 31, 2024 and 2023 (dollars in thousands):

  At or For the Three Months Ended March 31, 2024 
Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
Net interest income (1) $28,086  $2,260  $30,346 
Provision for credit losses  (1,251)  (148)  (1,399)
Noninterest income (2)  2,393   2,718   5,111 
Noninterest expense (3)  (19,008)  (4,521)  (23,529)
Income before provision for income taxes  10,220   309   10,529 
Provision for income taxes  (2,069)  (63)  (2,132)
Net income $8,151  $246  $8,397 
Total average assets for period ended $2,401,864  $556,683  $2,958,547 
Full-time employees ("FTEs")  440   130   570 
             


  At or For the Three Months Ended March 31, 2023 
Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
Net interest income (1) $27,500  $3,162  $30,662 
(Provision) recovery for credit losses  (2,122)  14   (2,108)
Noninterest income (2)  2,380   2,839   5,219 
Noninterest expense (3)  (18,610)  (4,914)  (23,524)
Income before provision for income taxes  9,148   1,101   10,249 
Provision for income taxes  (1,809)  (228)  (2,037)
Net income $7,339  $873  $8,212 
Total average assets for period ended $2,250,052  $491,974  $2,742,026 
FTEs  445   141   586 

 

_______________

(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 ended March 31, 2024, the Company recorded a net increase in fair value of $2,000, as compared to a net increase in fair value of $577,000 for the three months ended March 31, 2023. As of both March 31, 2024 and 2023, there was $15.0 million 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 ended March 31, 2024 and 2023, the Home Lending segment included allocated overhead expenses of $1.5 million and $1.6 million, respectively.    

Asset Summary

Total assets were $2.97 billion at both March 31, 2024, and December 31, 2023, and increased $186.9 million, or 6.7%, from $2.78 billion at March 31, 2023.  The changes in total assets at March 31, 2024, compared to December 31, 2023, included increases of $24.3 million in loans HFS, $13.9 million in loans receivable, net, and $3.6 million in other assets, partially offset by decreases of $20.3 million in total cash and cash equivalents, $13.3 million in securities available-for-sale, $8.1 million in MSRs HFS, and $1.9 million in deferred tax asset, net.  The increase in total assets at March 31, 2024, compared to March 31, 2023, was primarily due to increases in loans receivable, net of $115.7 million, securities available-for-sale of $47.3 million, loans HFS of $26.6 million, certificates of deposit at other financial institutions of $18.5 million, and other assets of $6.2 million. These increases were partially offset by decreases in total cash and cash equivalents of $12.8 million, MSRs of $8.6 million, core deposit intangible, net of $3.9 million, premises and equipment of $1.5 million, operating lease right-of-use of $1.2 million and deferred tax asset, net of $1.0 million.

LOAN PORTFOLIO                        
(Dollars in thousands) March 31, 2024  December 31, 2023  March 31, 2023 
  Amount  Percent  Amount  Percent  Amount  Percent 
REAL ESTATE LOANS                        
Commercial $359,055   14.7% $366,328   15.1% $339,794   14.6%
Construction and development  301,346   12.3   303,054   12.5   337,452   14.5 
Home equity  73,323   3.0   69,488   2.9   60,625   2.6 
One-to-four-family (excludes HFS)  580,050   23.7   567,742   23.3   501,100   21.5 
Multi-family  222,410   9.1   223,769   9.2   232,201   10.0 
Total real estate loans  1,536,184   62.8   1,530,381   63.0   1,471,172   63.2 
                         
CONSUMER LOANS                        
Indirect home improvement  568,802   23.2   569,903   23.4   531,632   22.8 
Marine  73,921   3.0   73,310   3.0   70,994   3.0 
Other consumer  3,409   0.1   3,540   0.1   4,042   0.2 
Total consumer loans  646,132   26.3   646,753   26.5   606,668   26.0 
                         
COMMERCIAL BUSINESS LOANS                        
Commercial and industrial ("C&I")  256,429   10.6   238,301   9.8   223,702   9.6 
Warehouse lending  8,113   0.3   17,580   0.7   28,044   1.2 
Total commercial business loans  264,542   10.9   255,881   10.5   251,746   10.8 
Total loans receivable, gross  2,446,858   100.0%  2,433,015   100.0%  2,329,586   100.0%
                         
Allowance for credit losses on loans  (31,479)      (31,534)      (29,937)    
Total loans receivable, net $2,415,379      $2,401,481      $2,299,649     
                         

Loans receivable, net increased $13.9 million to $2.42 billion at March 31, 2024, from $2.40 billion at December 31, 2023, and increased $115.7 million from $2.30 billion at March 31, 2023. Total real estate loans increased $5.8 million to $1.54 billion at March 31, 2024, compared to December 31, 2023, reflecting increases in one-to-four-family loans (excluding loans HFS) of $12.3 million and home equity loans of $3.8 million, partially offset by decreases in commercial real estate (“CRE”) loans of $7.3 million, construction and development loans of $1.7 million, and multi-family loans of $1.4 million. Similarly, commercial business loans increased $8.7 million to $264.5 million at March 31, 2024, compared to December 31, 2023, resulting from an increase of $18.1 million in C&I loans and a decrease of $9.5 million in warehouse lending.  Consumer loans decreased $621,000 to $646.1 million at March 31, 2024, compared to December 31, 2023, resulting from a $1.1 million decrease in indirect home improvement loans and $131,000 in other consumer loans, partially offset by an increase of $611,000 in marine loans.

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

(Dollars in thousands)            
  March 31, 2024  December 31, 2023  March 31, 2023 
CRE by Type: Amount  Amount  Amount 
Agriculture $3,744  $3,799  $3,983 
CRE Non-owner occupied:            
Office  41,625   42,739   45,864 
Retail  38,712   38,691   38,483 
Hospitality/restaurant  24,751   28,007   29,756 
Self storage  21,383   21,381   17,287 
Mixed use  19,186   19,331   16,547 
Industrial  17,475   16,978   14,418 
Senior housing/assisted living  8,446   8,505   8,626 
Other (1)  6,785   8,365   5,765 
Land  3,151   3,936   3,465 
Education/worship  2,595   2,620   2,692 
Total CRE non-owner occupied  184,109   190,553   182,903 
CRE owner occupied:            
Industrial  63,683   66,048   57,187 
Office  41,652   41,495   30,446 
Retail  21,836   22,020   23,548 
Hospitality/restaurant  10,933   11,065   14,457 
Other (2)  8,438   8,522   6,770 
Car wash  7,713   7,767   7,908 
Automobile related  7,479   7,530   8,298 
Education/worship  4,604   4,606   1,300 
Mixed use  4,864   2,923   2,994 
Total CRE owner occupied  171,202   171,976   152,908 
Total $359,055  $366,328  $339,794 

__________________________________

(1)   Primarily includes loans secured by mobile home parks totaling $789,000, $2.3 million, and $2.4 million, RV parks totaling $696,000, $699,000, and $709,000, automobile-related collateral totaling $604,000, $608,000, and $0.0, and other collateral totaling $4.7 million, $4.4 million, and $2.7 million, at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.
   
(2) Primarily includes loans secured by gas stations totaling $1.7 million, $1.7 million and $1.8 million, non-profit organization totaling $915,000, $922,000 and $941,000, and other collateral totaling $5.8 million, $5.5 million and $4.1 million, at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

The following tables includes CRE loans repricing or maturing within the next two years, excluding loans that reprice simultaneously with changes to the prime rate:

(Dollars in thousands)  For the Quarter Ended     
CRE by type: June 30,
2024
 September 30,
2024
 December 31,
2024
 March 31,
2025
 June 30,
2025
 September 30,
2025
 December 31,
2025
 March 31,
2026
 Total Current Weighted  
Average Rate
Agriculture $810 $52 $192 $ $ $ $325 $181 $1,560 6.89%
Apartment  950  5,956  29,913  1,763  4,775  401  10,158  3,029  56,945 4.45%
Auto related          2,122        2,122 4.18%
Hotel / hospitality    141    591  1,230  1,357    121  3,440 4.22%
Industrial  405      909  593    10,592  2,209  14,708 4.41%
Mixed use    950  807  1,772  3,509  256  322    7,616 4.93%
Office    938  4,779  1,048    4,295  1,010  536  12,606 3.96%
Other  126    1,213    118  1,283  250  3,510  6,500 4.91%
Retail  1,023  1,149  1,291  2,040    693    493  6,689 4.62%
Senior housing and assisted living                2,213  2,213 4.75%
Total $3,314 $9,186 $38,195 $8,123 $12,347 $8,285 $22,657 $12,292 $114,399 4.49%
                               

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

(Dollars in thousands)                
  March 31, 2024  December 31, 2023 
Construction Types: Amount  Percent  Amount  Percent 
Commercial construction - retail $8,290   2.8% $7,445   2.5%
Commercial construction - office  4,737   1.6   4,699   1.5 
Commercial construction - self storage  10,000   3.3   10,000   3.3 
Commercial construction - car wash  7,807   2.6   7,742   2.6 
Multi-family  53,288   17.7   56,065   18.5 
Custom construction - single family residential and single family manufactured residential  50,674   16.8   47,230   15.6 
Custom construction - land, lot and acquisition and development  6,455   2.1   6,377   2.1 
Speculative residential construction - vertical  134,047   44.5   131,336   43.3 
Speculative residential construction - land, lot and acquisition and development  26,048   8.6   32,160   10.6 
Total $301,346   100.0% $303,054   100.0%


(Dollars in thousands)                
  March 31, 2024  March 31, 2023 
Construction Types: Amount  Percent  Amount  Percent 
Commercial construction - retail $8,290   2.8% $6,296   1.9%
Commercial construction - office  4,737   1.6   3,097   0.9 
Commercial construction - self storage  10,000   3.3   16,027   4.7 
Commercial construction - car wash  7,807   2.6   4,737   1.4 
Multi-family  53,288   17.7   62,384   18.5 
Custom construction - single family residential and single family manufactured residential  50,674   16.8   39,700   11.8 
Custom construction - land, lot and acquisition and development  6,455   2.1   5,502   1.6 
Speculative residential construction - vertical  134,047   44.5   162,955   48.3 
Speculative residential construction - land, lot and acquisition and development  26,048   8.6   36,754   10.9 
Total $301,346   100.0% $337,452   100.0%
                 

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

(Dollars in thousands) For the Three Months Ended  For the Three Months Ended         
  March 31, 2024  December 31, 2023         
  Amount  Percent  Amount  Percent  $ Change  % Change 
Purchase $135,577   88.1% $110,458   90.7% $25,119   22.7%
Refinance  18,371   11.9   11,290   9.3   7,081   62.7 
Total $153,948   100.0% $121,748   100.0% $32,200   26.4%


(Dollars in thousands) For the Three Months Ended March 31,         
  2024  2023         
  Amount  Percent  Amount  Percent  $ Change  % Change 
Purchase $135,577   88.1% $102,489   92.3% $33,088   32.3%
Refinance  18,371   11.9   8,535   7.7   9,836   115.2 
Total $153,948   100.0% $111,024   100.0% $42,924   38.7%
                         

During the quarter ended March 31, 2024, the Company sold $93.9 million of one-to-four-family loans compared to $87.5 million during the previous quarter and $77.3 million during the same quarter one year ago. Gross margins on home loan sales increased to 3.43% for the quarter ended March 31, 2024, compared to 3.09% in the previous quarter and increased from 3.05% 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 were as follows:

(Dollars in thousands)                        
  March 31, 2024  December 31, 2023         
Transactional deposits: Amount  Percent  Amount  Percent  $ Change  % Change 
Noninterest-bearing checking $618,526   25.1% $654,048   25.9% $(35,522)  (5.4)%
Interest-bearing checking (1)  188,050   7.6   244,028   9.7   (55,978)  (22.9)
Escrow accounts related to mortgages serviced (2)  28,373   1.2   16,783   0.7   11,590   69.1 
Subtotal  834,949   33.9   914,859   36.3   (79,910)  (8.7)
Savings  153,025   6.2   151,630   6.0   1,395   0.9 
Money market (3)  364,944   14.8   359,063   14.2   5,881   1.6 
Subtotal  517,969   21.0   510,693   20.2   7,276   1.4 
Certificates of deposit less than $100,000 (4)  579,153   23.5   587,858   23.3   (8,705)  (1.5)
Certificates of deposit of $100,000 through $250,000  424,463   17.2   429,373   17.0   (4,910)  (1.1)
Certificates of deposit greater than $250,000  108,763   4.4   79,540   3.2   29,223   36.7 
Subtotal  1,112,379   45.1   1,096,771   43.5   15,608   1.4 
Total $2,465,297   100.0% $2,522,323   100.0% $(57,026)  (2.3)%
                         


(Dollars in thousands)                        
  March 31, 2024  March 31, 2023         
Transactional deposits: Amount  Percent  Amount  Percent  $ Change  % Change 
Noninterest-bearing checking $618,526   25.1% $719,856   29.5% $(101,330)  (14.1)%
Interest-bearing checking (1)  188,050   7.6   183,888   7.5   4,162   2.3 
Escrow accounts related to mortgages serviced (2)  28,373   1.2   27,066   1.1   1,307   4.8 
Subtotal  834,949   33.9   930,810   38.1   (95,861)  (10.3)
Savings  153,025   6.2   188,510   7.7   (35,485)  (18.8)
Money market (3)  364,944   14.8   549,542   22.5   (184,598)  (33.6)
Subtotal  517,969   21.0   738,052   30.2   (220,083)  (29.8)
Certificates of deposit less than $100,000 (4)  579,153   23.5   409,236   16.8   169,917   41.5 
Certificates of deposit of $100,000 through $250,000  424,463   17.2   270,476   11.0   153,987   56.9 
Certificates of deposit greater than $250,000  108,763   4.4   94,699   3.9   14,064   14.9 
Subtotal  1,112,379   45.1   774,411   31.7   337,968   43.6 
Total $2,465,297   100.0% $2,443,273   100.0% $22,024   0.9%

_______________

(1) Includes $0.0, $70.2 million, and $2.6 million of brokered deposits at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.
   
(2) Noninterest-bearing accounts.
   
(3) Includes $8.0 million, $1,000 and $50.3 million of brokered deposits at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
   
(4) Includes $331.3 million, $361.3 million, and $266.1 million of brokered deposits at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
   

At March 31, 2024, certificates of deposit (“CDs”), which include retail and non-retail CDs, totaled $1.11 billion, compared to $1.10 billion at December 31, 2023 and $774.4 million at March 31, 2023, with non-retail CDs representing 31.0%, 34.2% and 37.5% of total CDs at such dates, respectively. At March 31, 2024, non-retail CDs, which include brokered CDs, online CDs and public funds CDs, decreased $30.0 million to $344.5 million, compared to $374.5 million at December 31, 2023, primarily due to a decrease of $30.0 million in brokered CDs. Non-retail CDs totaled $344.5 million at March 31, 2024, compared to $290.4 million at March 31, 2023.

At March 31, 2024, the Bank had uninsured deposits of approximately $614.1 million, compared to approximately $606.5 million at December 31, 2023, and $633.4 million at March 31, 2023.  The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

At March 31, 2024, borrowings totaled $129.9 million and were comprised of advances from the Federal Reserve Bank's Term Funding Program of $89.9 million, Federal Reserve Bank borrowings of $23.0 million, and FHLB fixed-rate advances of $17.1 million.  Borrowings increased $36.2 million to $129.9 million at March 31, 2024, from $93.7 million at December 31, 2023, and increased $122.4 million from $7.5 million at March 31, 2023.  The increase was partially attributable to the decrease in total deposits.

Total stockholders’ equity increased $13.4 million to $277.9 million at March 31, 2024, from $264.5 million at December 31, 2023, and increased $36.1 million, from $241.8 million at March 31, 2023. The increase in stockholders’ equity at March 31, 2024, compared to December 31, 2023, reflects net income of $8.4 million, partially offset by dividends paid of $2.0 million. In addition, stockholders’ equity was positively impacted by decreases in unrealized net losses on securities available for sale of $4.3 million, net of tax, and unrealized net gains on fair value and cash flow hedges of $2.6 million, net of tax, reflecting sales of investment securities and changes in market interest rates during the quarter, resulting in a $6.9 million improvement in accumulated other comprehensive loss. Book value per common share was $36.06 at March 31, 2024, compared to $34.36 at December 31, 2023, and $31.69 at March 31, 2023.

The Bank is considered well capitalized under the capital requirements established by the Federal Deposit Insurance Corporation (“FDIC”) with a total risk-based capital ratio of 13.7%, a Tier 1 leverage capital ratio of 10.6%, and a common equity Tier 1 (“CET1”) capital ratio of 12.5% at March 31, 2024.

The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 14.1%, a Tier 1 leverage capital ratio of 9.2%, and a CET1 ratio of 10.9% at March 31, 2024.

Credit Quality

The ACLL was $31.5 million, or 1.29% of gross loans receivable (excluding loans HFS) at March 31, 2024, compared to $31.5 million, or 1.30% of gross loans receivable (excluding loans HFS), at December 31, 2023, and $29.9 million, or 1.29% of gross loans receivable (excluding loans HFS), at March 31, 2023. The $1.5 million increase in the ACLL at March 31, 2024, compared to the prior year was primarily due to organic loan growth and increases in nonperforming loans and net charge-offs. The allowance for credit losses on unfunded loan commitments was $1.5 million at both March 31, 2024 and December 31, 2023, and decreased $800,000 from $2.3 million at March 31, 2023. This decrease was attributable to a decline in unfunded construction loan commitments at March 31, 2024.

Nonperforming loans increased $1.2 million to $12.1 million at March 31, 2024, compared to $11.0 million at December 31, 2023, and increased $3.4 million from $8.7 million at March 31, 2023. The increase in nonperforming loans at March 31, 2024, from the prior quarter was primarily due to increases in nonperforming commercial business loans of $659,000 and indirect home improvement loans of $332,000. The increase in nonperforming loans compared to the prior year was primarily due to increases in construction and development loans of $4.7 million, CRE loans of $1.1 million, and indirect home improvement loans of $922,000, partially offset by decreases in commercial business loans of $3.0 million and one-to-four family loans of $474,000. Classified loans totaled $24.9 million, at March 31, 2024, all of which were classified as substandard, compared to classified loans of $24.9 million at December 31, 2023, of which $24.5 million were classified as substandard and $399,000 were classified as doubtful and classified loans of $19.6 million at March 31, 2023, all of which were substandard loans.  The increase in substandard loans at March 31, 2024 compared to the prior year was primarily due to increases of $4.7 million in construction and development loans and $922,000 in indirect home improvement loans, partially offset by a decrease of $904,000 in CRE loans. There were no other real estate owned (“OREO”) properties at both March 31, 2024 and December 31, 2023, compared to one OREO property (a closed branch in Centralia) in the amount of $570,000 at March 31, 2023.

Operating Results

Net interest income decreased $316,000 to $30.3 million for the three months ended March 31, 2024, from $30.7 million for the three months ended March 31, 2023, due to an increase in interest expense on deposits, partially offset by an increase in interest and dividend income. Total interest income for the three months ended March 31, 2024, increased $6.3 million compared to the same period last year, primarily due to an increase of $5.0 million in interest income on loans receivable, including fees, primarily as a result of new loans being originated at higher rates and variable rate loans repricing higher following increased market interest rates during the first six months of 2023. Total interest expense for the three months ended March 31, 2024, increased $6.6 million 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.

NIM decreased 44 basis points to 4.26% for the three months ended March 31, 2024, from 4.70% for the same period in the prior year.  The change in NIM for the three months ended March 31, 2024 compared to the same period in 2023, reflects the increased costs of deposits and borrowings, which outpaced the increased yields earned on interest-earning assets. 

The average total cost of funds, including noninterest-bearing checking, increased 89 basis points to 2.21% for the three months ended March 31, 2024, from 1.32% for the three months ended March 31, 2023. This increase was predominantly due to higher market rates for deposits. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three months ended March 31, 2024, the provision for credit losses on loans was $1.4 million, compared to $2.4 million for the three months ended March 31, 2023. The provision for credit losses on loans reflects an increase in the loan portfolio, as well as an increase in nonperforming loans and higher net charge-offs during the period.

During the three months ended March 31, 2024, net charge-offs totaled $1.5 million, compared to $410,000 for the same period last year, primarily due to increased net charge-offs of $441,000 in indirect home improvement loans, $408,000 in commercial business loans, and $169,000 in marine loans. Management attributes the increase in net charge-offs over the year primarily to volatile economic conditions.

Noninterest income decreased $108,000 to $5.1 million for the three months ended March 31, 2024, from $5.2 million for the three months ended March 31, 2023. The decrease reflects an $8.0 million loss on sale of investment securities resulting from management's strategic decision to increase yields earned on and reduce the duration of the securities portfolio, and a $650,000 decrease in other noninterest income primarily due to fair value adjustments in the loan portfolio, partially offset by an $8.2 million increase in gain on sale of MSRs and a $362,000 gain on sale of loans. 

Noninterest expense was $23.5 million for both the three months ended March 31, 2024 and 2023. The variations in noninterest expense were primarily due to the absence of acquisition costs in the current period, in contrast to $1.5 million incurred in the prior year.  Additionally, there was a decrease of $307,000 in salaries and benefits, partially offset by increases of $482,000 in amortization of core deposit intangible, $390,000 in data processing, $316,000 in operations, $245,000 in professional and board fees, $185,000 in occupancy expense, and $115,000 in loan costs. 

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 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 
  March 31,  December 31,  March 31,  Quarter  Over Year 
  2024  2023  2023  % Change  % Change 
ASSETS                    
Cash and due from banks $17,149  $17,083  $21,481      (20)
Interest-bearing deposits at other financial institutions  28,257   48,608   36,700   (42)  (23)
Total cash and cash equivalents  45,406   65,691   58,181   (31)  (22)
Certificates of deposit at other financial institutions  23,222   24,167   4,712   (4)  393 
Securities available-for-sale, at fair value  279,643   292,933   232,373   (5)  20 
Securities held-to-maturity, net  8,455   8,455   8,469       
Loans held for sale, at fair value  49,957   25,668   23,310   95   114 
Loans receivable, net  2,415,379   2,401,481   2,299,649   1   5 
Accrued interest receivable  14,455   14,005   12,336   3   17 
Premises and equipment, net  30,326   30,578   31,781   (1)  (5)
Operating lease right-of-use  6,202   6,627   7,414   (6)  (16)
Federal Home Loan Bank stock, at cost  2,909   2,114   3,863   38   (25)
Other real estate owned        570   NM   (100)
Deferred tax asset, net  4,832   6,725   5,860   (28)  (18)
Bank owned life insurance (“BOLI”), net  37,958   37,719   37,020   1   3 
MSRs, held at the lower of cost or fair value  9,009   9,090   17,599   (1)  (49)
MSRs, held for sale, held at the lower of cost or fair value     8,086      (100)  NM 
Goodwill  3,592   3,592   3,592       
Core deposit intangible, net  16,402   17,343   20,348   (5)  (19)
Other assets  21,958   18,395   15,731   19   40 
TOTAL ASSETS $2,969,705  $2,972,669  $2,782,808      7 
LIABILITIES                    
Deposits:                    
Noninterest-bearing accounts $646,899  $670,831  $746,922   (4)  (13)
Interest-bearing accounts  1,818,398   1,851,492   1,696,351   (2)  7 
Total deposits  2,465,297   2,522,323   2,443,273   (2)  1 
Borrowings  129,940   93,746   7,528   39   1626 
Subordinated notes:                    
Principal amount  50,000   50,000   50,000       
Unamortized debt issuance costs  (456)  (473)  (523)  (4)  (13)
Total subordinated notes less unamortized debt issuance costs  49,544   49,527   49,477       
Operating lease liability  6,410   6,848   7,651   (6)  (16)
Other liabilities  40,582   35,737   33,045   14   23 
Total liabilities  2,691,773   2,708,181   2,540,974   (1)  6 
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; 7,805,795 shares issued and outstanding at March 31, 2024, 7,800,545 at December 31, 2023, and 7,743,283 at March 31, 2023  78   78   77      1 
Additional paid-in capital  57,552   57,362   56,138      3 
Retained earnings  236,720   230,354   208,342   3   14 
Accumulated other comprehensive loss, net of tax  (16,418)  (23,306)  (22,723)  (30)  (28)
Total stockholders’ equity  277,932   264,488   241,834   5   15 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $2,969,705  $2,972,669  $2,782,808      7 
                     


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)
 
  Three Months Ended      Prior 
  March 31,  December 31,  March 31,  Linked Qtr.  Year Qtr. 
  2024  2023  2023  % Change  % Change 
INTEREST INCOME                    
Loans receivable, including fees $40,997  $40,863  $35,992      14 
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions  3,883   3,580   2,620   8   48 
Total interest and dividend income  44,880   44,443   38,612   1   16 
INTEREST EXPENSE                    
Deposits  12,882   12,055   6,624   7   94 
Borrowings  1,167   1,447   841   (19)  39 
Subordinated notes  485   486   485       
Total interest expense  14,534   13,988   7,950   4   83 
NET INTEREST INCOME  30,346   30,455   30,662      (1)
PROVISION FOR CREDIT LOSSES  1,399   1,402   2,108      (34)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES  28,947   29,053   28,554      1 
NONINTEREST INCOME                    
Service charges and fee income  2,552   2,786   2,608   (8)  (2)
Gain on sale of loans  1,838   1,413   1,476   30   25 
Gain on sale of MSRs  8,215         NM   NM 
Loss on sale of investment securities  (7,998)        NM   NM 
Earnings on cash surrender value of BOLI  240   239   221      9 
Other noninterest income  264   1,018   914   (74)  (71)
Total noninterest income  5,111   5,456   5,219   (6)  (2)
NONINTEREST EXPENSE                    
Salaries and benefits  13,557   12,742   13,864   6   (2)
Operations  3,008   3,326   2,692   (10)  12 
Occupancy  1,705   1,708   1,520      12 
Data processing  1,958   1,760   1,568   11   25 
Gain on sale of OREO     (148)     (100)  NM 
Loan costs  585   497   470   18   24 
Professional and board fees  923   583   678   58   36 
FDIC insurance  532   660   580   (19)  (8)
Marketing and advertising  227   277   190   (18)  19 
Acquisition costs        1,501   NM   (100)
Amortization of core deposit intangible  941   980   459   (4)  105 
Impairment of servicing rights  93   48   2   94   4,550 
Total noninterest expense  23,529   22,433   23,524   5    
INCOME BEFORE PROVISION FOR INCOME TAXES  10,529   12,076   10,249   (13)  3 
PROVISION FOR INCOME TAXES  2,132   2,304   2,037   (7)  5 
NET INCOME $8,397  $9,772  $8,212   (14)  2 
Basic earnings per share $1.07  $1.25  $1.06   (14)  1 
Diluted earnings per share $1.06  $1.23  $1.04   (14)  2 
                     

KEY FINANCIAL RATIOS AND DATA (Unaudited)

  For the Three Months Ended 
  March 31,  December 31,  March 31, 
  2024  2023  2023 
PERFORMANCE RATIOS:            
Return on assets (ratio of net income to average total assets) (1)  1.14%  1.32%  1.23%
Return on equity (ratio of net income to average equity) (1)  12.29   15.01   13.85 
Yield on average interest-earning assets (1)  6.30   6.19   5.91 
Average total cost of funds (1)  2.21   2.10   1.32 
Interest rate spread information – average during period  4.09   4.09   4.59 
Net interest margin (1)  4.26   4.24   4.70 
Operating expense to average total assets (1)  3.20   3.02   3.52 
Average interest-earning assets to average interest-bearing liabilities (1)  144.51   143.45   145.72 
Efficiency ratio (2)  66.36   62.47   65.56 
Common equity ratio (ratio of stockholders' equity to total assets)  9.36   8.90   8.69 
Tangible common equity ratio (3)  8.74   8.25   8.87 
             


  March 31,  December 31,  March 31, 
  2024  2023  2023 
ASSET QUALITY RATIOS AND DATA:            
Nonperforming assets to total assets at end of period (4)  0.41%  0.37%  0.33%
Nonperforming loans to total gross loans (excluding loans held for sale) (5)  0.49   0.45   0.37 
Allowance for credit losses – loans to nonperforming loans (5)  260.24   288.11   323.26 
Allowance for credit losses – loans to total gross loans (excluding loans held for sale)  1.29   1.30   1.29 
             


  At or For the Three Months Ended 
  March 31,  December 31,  March 31, 
  2024  2023  2023 
PER COMMON SHARE DATA:            
Basic earnings per share $1.07  $1.25  $1.06 
Diluted earnings per share $1.06  $1.23  $1.04 
Weighted average basic shares outstanding  7,703,789   7,696,429   7,623,580 
Weighted average diluted shares outstanding  7,824,460   7,795,383   7,778,418 
Common shares outstanding at end of period  7,707,651(6)  7,698,401(7)  7,631,018(8)
Book value per share using common shares outstanding $36.06  $34.36  $31.69 
Tangible book value per share using common shares outstanding (3) $33.47  $31.64  $28.55 

 

_______________

 (1)  Annualized.
   
 (2)  Total noninterest expense as a percentage of net interest income and total noninterest income.
   
 (3)  Represents a non-GAAP financial measure.  For a reconciliation to the most comparable 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 7,805,795 at March 31, 2024, less 98,144 unvested restricted stock shares.
   
(7) Common shares were calculated using shares outstanding of 7,800,545 at December 31, 2023, less 102,144 unvested restricted stock shares.
   
(8) Common shares were calculated using shares outstanding of 7,743,283 at March 31, 2023, less 112,265 unvested restricted stock shares.
   


(Dollars in thousands) For the Three Months Ended March 31,  Qtr. Over Qtr. 
Average Balances 2024  2023  $ Change 
Assets            
Loans receivable, net (1) $2,464,602  $2,292,364  $172,238 
Securities available-for-sale, at amortized cost  331,413   270,676   60,737 
Securities held-to-maturity  8,500   8,500   - 
Interest-bearing deposits and certificates of deposit at other financial institutions  59,514   69,664   (10,150)
FHLB stock, at cost  2,174   6,335   (4,161)
Total interest-earning assets  2,866,203   2,647,539   218,664 
Noninterest-earning assets  92,344   94,486   (6,366)
Total assets $2,958,547  $2,742,025  $216,522 
Liabilities            
Interest-bearing accounts $1,832,767  $1,688,037  $144,730 
Borrowings  101,150   79,339   21,811 
Subordinated notes  49,533   49,467   66 
Total interest-bearing liabilities  1,983,450   1,816,843   166,607 
Noninterest-bearing accounts  657,083   620,071   37,012 
Other noninterest-bearing liabilities  43,246   34,434   8,812 
Total liabilities $2,683,779  $2,471,348  $212,431 

_______________
(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 total organic deposits, tangible book value per share, and tangible common equity ratio. Management believes that providing total organic deposit growth illustrates the Company's commitment to expand its unique brand within the communities it serves by excluding brokered deposits and deposits acquired. Management also 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 deposits and the non-GAAP organic deposits with changes between the periods is presented below:

 March 31, December 31, September 30, March 31, December 31, Linked Prior Prior Year
 2024 2023 2023 2023 2022 Qtr. Change Qtr. Change Qtr. Change
Total Deposits$2,465,297  $2,522,323  $2,454,444  $2,443,273  $2,127,741  $(57,026) $67,879  $315,532 
Brokered CDs Deposits (331,311)  (361,289)  (323,338)  (266,114)  (331,933)  29,978   (37,951)  65,819 
Brokered Checking    (70,240)  (50,085)  (2,648)  (2,258)  70,240   (20,155)  (390)
Brokered Money Market (8,011)  (1)  (51)  (50,311)  (59,668)  (8,010)  50   9,357 
Acquired Deposits- Columbia Bank          (382,120)           (382,120)
Total Organic Deposits$2,125,975  $2,090,793  $2,080,970  $1,742,080  $1,733,882  $35,182  $9,823  $8,198 
                                

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) March 31,  December 31,  March 31, 
Tangible Book Value Per Share: 2024  2023  2023 
Stockholders' equity (GAAP) $277,932  $264,488  $241,834 
Less: goodwill and core deposit intangible, net  (19,994)  (20,935)  (23,940)
Tangible common stockholders' equity (non-GAAP) $257,938  $243,553  $217,894 
             
Common shares outstanding at end of period  7,707,651   7,698,401   7,631,018 
             
Book value per share (GAAP) $36.06  $34.36  $31.69 
Tangible book value per share (non-GAAP) $33.47  $31.64  $28.55 
             
Tangible Common Equity Ratio:            
Total assets (GAAP) $2,969,705  $2,972,669  $2,782,808 
Less: goodwill and core deposit intangible assets  (19,994)  (20,935)  (23,940)
Tangible assets (non-GAAP) $2,949,711  $2,951,734  $2,758,868 
             
Common equity ratio (GAAP)  9.36%  8.90%  8.69%
Tangible common equity ratio (non-GAAP)  8.74   8.25   7.90 
             

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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