• FS Bancorp, Inc. Reports Third Quarter Net Income of $9.0 Million or $1.13 Per Diluted Share and the Forty-Third Consecutive Quarterly Dividend

    ソース: Nasdaq GlobeNewswire / 25 10 2023 15:30:01   America/Chicago

    MOUNTLAKE TERRACE, Wash., Oct. 25, 2023 (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 2023 third quarter net income of $9.0 million, or $1.13 per diluted share, compared to $8.5 million, or $1.08 per diluted share, for the comparable quarter one year ago. For the nine months ended September 30, 2023, net income was $26.3 million, or $3.33 per diluted share, compared to net income of $22.0 million, or $2.73 per diluted share, for the comparable nine-month period in 2022.

    “We were honored to be recently named the ‘Number One Best Place to Work’ in the extra-large company category by the Puget Sound Business Journal,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our forty-third consecutive quarterly cash dividend of $0.25 per share, demonstrating our continued commitment to returning value to shareholders.  The cash dividend will be paid on November 22, 2023, to shareholders of record as of November 9, 2023,” concluded Adams.

    2023 Third Quarter Highlights

    • Net income was $9.0 million for the third quarter of 2023, compared to $9.1 million in the previous quarter, and $8.5 million for the comparable quarter one year ago;
    • Net interest margin (“NIM”) compressed to 4.34%, compared to 4.66% for the previous quarter, and 4.54% for the comparable quarter one year ago;
    • Total deposits increased $89.1 million, or 3.8%, to $2.45 billion at September 30, 2023 compared to $2.37 billion at June 30, 2023 and increased $371.1 million, or 17.8%, from $2.08 billion at September 30, 2022, with noninterest-bearing deposit totals of $670.2 million at September 30, 2023, $675.2 million at June 30, 2023, and $581.6 million at September 30, 2022;
    • Loans receivable, net increased $33.1 million, or 1.4%, to $2.38 billion at September 30, 2023, compared to $2.34 billion at June 30, 2023, and increased $291.6 million, or 14.0%, from $2.08 billion at September 30, 2022;
    • Consumer loans, of which 87.9% are home improvement loans, increased $6.2 million, or 1.0%, to $640.1 million at September 30, 2023, compared to $633.9 million in the previous quarter, and increased $121.5 million, or 23.4%, from $518.6 million in the comparable quarter one year ago. During the three months ended September 30, 2023, consumer loan originations included 82.4% of home improvement loans originated with a Fair Isaac and Company, Incorporated (“FICO”) score above 720 and 95.5% of home improvement loans with a UCC-2 security filing;
    • Segment reporting in the third quarter of 2023 reflected net income of $8.8 million for the Commercial and Consumer Banking segment and $166,000 for the Home Lending segment, compared to net income of $9.1 million and $55,000 in the prior quarter, and net income of $9.3 million and net loss of $794,000 in the third 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 216% at September 30, 2023, compared to 209% in the prior quarter. The average deposit size per FDIC-insured account at the Bank was $33,000 for both September 30, 2023 and June 30, 2023; and
    • Regulatory capital ratios at the Bank were 13.1% for total risk-based capital and 10.3% for Tier 1 leverage capital at September 30, 2023, compared to 12.9% for total risk-based capital and 10.3% for Tier 1 leverage capital at June 30, 2023.

    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 and nine months ended September 30, 2023 and 2022 (dollars in thousands): 

      At or For the Three Months Ended September 30, 2023 
    Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
    Net interest income (1) $27,563  $3,071  $30,634 
    Provision for credit losses  (437)  (111)  (548)
    Noninterest income (2)  2,680   2,302   4,982 
    Noninterest expense (3)  (18,539)  (5,047)  (23,586)
    Income before provision for income taxes  11,267   215   11,482 
    Provision for income taxes  (2,480)  (49)  (2,529)
    Net income $8,787  $166  $8,953 
    Total average assets for period ended $2,361,014  $540,372  $2,901,386 
    Full-time employees ("FTEs")  434   128   562 


      At or For the Three Months Ended September 30, 2022 
    Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
    Net interest income (1) $24,620  $2,907  $27,527 
    (Provision) recovery for credit losses  (1,811)  93   (1,718)
    Noninterest income (2)  3,314   867   4,181 
    Noninterest expense (3)  (14,471)  (4,867)  (19,338)
    Income (loss) before (provision) benefit for income taxes  11,652   (1,000)  10,652 
    (Provision) benefit for income taxes  (2,400)  206   (2,194)
    Net income (loss) $9,252  $(794) $8,458 
    Total average assets for period ended $2,072,614  $427,368  $2,499,982 
    FTEs  389   140   529 


      At or For the Nine Months Ended September 30, 2023 
    Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
    Net interest income (1) $83,332  $9,516  $92,848 
    Provision for credit losses  (2,555)  (817)  (3,372)
    Noninterest income (2)  7,766   7,268   15,034 
    Noninterest expense (3)  (56,099)  (15,215)  (71,314)
    Income before provision for income taxes  32,444   752   33,196 
    Provision for income taxes  (6,758)  (157)  (6,915)
    Net income $25,686  $595  $26,281 
    Total average assets for period ended $2,288,996  $520,513  $2,809,509 
    FTEs  434   128   562 


      At or For the Nine Months Ended September 30, 2022 
    Condensed income statement: Commercial and Consumer Banking  Home Lending  Total 
    Net interest income (1) $66,983  $7,995  $74,978 
    Provision for credit losses  (3,727)  (905)  (4,632)
    Noninterest income (2)  7,944   6,468   14,412 
    Noninterest expense (3)  (42,878)  (14,456)  (57,334)
    Income (loss) before (provision) benefit for income taxes  28,322   (898)  27,424 
    (Provision) benefit for income taxes  (5,583)  186   (5,397)
    Net income (loss) $22,739  $(712) $22,027 
    Total average assets for period ended $1,972,376  $403,990  $2,376,366 
    FTEs  389   140   529 


    (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 and nine months ended September 30, 2023, the Company recorded a net decrease in fair value of $343,000 and $285,000, as compared to a net decrease in fair value of $816,000 and $1.8 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023 and 2022, there were $15.2 million and $14.2 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 and nine months ended September 30, 2023 and 2022, the Home Lending segment included allocated overhead expenses of $1.5 million and $4.7 million, respectively.    
      

    Asset Summary

    Total assets increased $14.5 million, or 0.5%, to $2.92 billion at September 30, 2023, compared to $2.91 billion at June 30, 2023, and increased $267.9 million, or 10.1%, from $2.65 billion at September 30, 2022.  The increase in total assets at September 30, 2023, compared to the June 30, 2023, was primarily due to increases in loans receivable, net of $33.1 million and securities available-for-sale of $26.0 million, partially offset by a decrease in total cash and cash equivalents of $51.4 million.  The increase in total assets at September 30, 2023, compared to September 30, 2022, was primarily due to increases in loans receivable, net of $291.6 million, primarily due to organic loan growth funded through deposits received from the purchase of seven retail branches from Columbia State Bank completed on February 24, 2023 (“Branch Acquisition”) and assets purchased in the Branch Acquisition. The increase in total assets at September 30, 2023, compared to September 30, 2022, also included securities available-for-sale of $24.0 million, core deposit intangible (“CDI”), net of $14.8 million and interest-earning deposits at other financial institutions of $12.7 million.  These increases were partially offset by decreases in total cash and cash equivalents of $79.1 million, FHLB stock of $9.9 million and loans held for sale (“HFS”) of $4.8 million.

    LOAN PORTFOLIO                        
    (Dollars in thousands) September 30, 2023  June 30, 2023  September 30, 2022 
      Amount  Percent  Amount  Percent  Amount  Percent 
    REAL ESTATE LOANS                        
    Commercial $364,673   15.2% $343,008   14.4% $310,923   14.7%
    Construction and development  289,873   12.0   312,093   13.2   335,177   15.9 
    Home equity  67,103   2.8   62,304   2.6   53,681   2.6 
    One-to-four-family (excludes HFS)  540,670   22.5   521,734   22.0   429,196   20.3 
    Multi-family  243,661   10.1   231,675   9.8   223,712   10.6 
    Total real estate loans  1,505,980   62.6   1,470,814   62.0   1,352,689   64.1 
                             
    CONSUMER LOANS                        
    Indirect home improvement  562,650   23.4   557,818   23.5   447,462   21.2 
    Marine  73,887   3.1   72,484   3.0   68,106   3.2 
    Other consumer  3,547   0.1   3,606   0.2   2,987   0.2 
    Total consumer loans  640,084   26.6   633,908   26.7   518,555   24.6 
                             
    COMMERCIAL BUSINESS LOANS                        
    Commercial and industrial  236,520   9.8   237,403   10.0   211,009   10.0 
    Warehouse lending  23,489   1.0   30,649   1.3   28,102   1.3 
    Total commercial business loans  260,009   10.8   268,052   11.3   239,111   11.3 
    Total loans receivable, gross  2,406,073   100.0%  2,372,774   100.0%  2,110,355   100.0%
                             
    Allowance for credit losses on loans  (30,501)      (30,350)      (26,426)    
    Total loans receivable, net $2,375,572      $2,342,424      $2,083,929     
                             

    Loans receivable, net increased $33.1 million to $2.38 billion at September 30, 2023, from $2.34 billion at June 30, 2023, and increased $291.6 million from $2.08 billion at September 30, 2022. The increase in total real estate loans at September 30, 2023, compared to the prior quarter reflects increases in commercial real estate loans of $21.7 million, one-to-four-family loans (excluding loans HFS) of $18.9 million, multi-family loans of $12.0 million, home equity loans of $4.8 million, and consumer loans, primarily indirect home improvement loans of $6.2 million. These increases were partially offset by an $8.0 million decrease in commercial business loans, primarily as a result of a $7.2 million decrease in warehouse lending. 

    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         
      September 30, 2023  June 30, 2023         
      Amount  Percent  Amount  Percent  $ Change  % Change 
    Purchase $139,345   92.1% $145,377   91.2% $(6,032)  (4.1)%
    Refinance  12,001   7.9   14,099   8.8   (2,098)  (14.8)
    Total $151,346   100.0% $159,476   100.0% $(8,130)  (5.0)%
                             


    (Dollars in thousands) For the Three Months Ended September 30,         
      2023  2022         
      Amount  Percent  Amount  Percent  $ Change  % Change 
    Purchase $139,345   92.1% $172,639   89.1% $(33,294)  (19.3)%
    Refinance  12,001   7.9   21,096   10.9   (9,095)  (43.1)
    Total $151,346   100.0% $193,735   100.0% $(42,389)  (21.9)%


    (Dollars in thousands) For the Nine Months Ended September 30,         
      2023  2022         
      Amount  Percent  Amount  Percent  $ Change  % Change 
    Purchase $387,211   91.8% $549,259   78.7% $(162,048)  (29.5)%
    Refinance  34,635   8.2   148,335   21.3   (113,700)  (76.7)
    Total $421,846   100.0% $697,594   100.0% $(275,748)  (39.5)%
                             

    The decrease in loan purchase and refinance activity, as well as slower sales activity, compared to the comparable period in 2022 reflects the impact of rising market interest rates and low available housing inventory in our market areas.

    During the quarter ended September 30, 2023, the Company sold $117.6 million of one-to-four-family loans compared to $127.0 million during the previous quarter and $142.3 million during the same quarter one year ago. Gross margins on home loan sales increased to 3.08% for the quarter ended September 30, 2023, compared to 3.07% in the previous quarter and increased from 2.85% 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)                        
      September 30, 2023  June 30, 2023         
    Transactional deposits: Amount  Percent  Amount  Percent  $ Change  % Change 
    Noninterest-bearing checking $643,670   26.2% $658,440   27.9% $(14,770)  (2.2)%
    Interest-bearing checking (1)  219,468   8.9   183,012   7.7   36,456   19.9 
    Escrow accounts related to mortgages serviced (2)  26,489   1.1   16,772   0.7   9,717   57.9 
    Subtotal  889,627   36.2   858,224   36.3   31,403   3.7 
    Savings  157,901   6.4   169,013   7.2   (11,112)  (6.6)
    Money market (3)  389,962   15.9   419,308   17.7   (29,346)  (7.0)
    Subtotal  547,863   22.3   588,321   24.9   (40,458)  (6.9)
    Certificates of deposit less than $100,000 (4)  527,032   21.5   473,026   20.0   54,006   11.4 
    Certificates of deposit of $100,000 through $250,000  406,545   16.6   358,238   15.1   48,307   13.5 
    Certificates of deposit of $250,000 and over  83,377   3.4   87,499   3.7   (4,122)  (4.7)
    Subtotal  1,016,954   41.5   918,763   38.8   98,191   10.7 
    Total $2,454,444   100.0% $2,365,308   100.0% $89,136   3.8%


    (Dollars in thousands)                        
      September 30, 2023  September 30, 2022         
    Transactional deposits: Amount  Percent  Amount  Percent  $ Change  % Change 
    Noninterest-bearing checking $643,670   26.2% $555,753   26.7% $87,917   15.8%
    Interest-bearing checking (1)  219,468   8.9   147,968   7.1   71,500   48.3 
    Escrow accounts related to mortgages serviced (2)  26,489   1.1   25,859   1.2   630   2.4 
    Subtotal  889,627   36.2   729,580   35.0   160,047   21.9 
    Savings  157,901   6.4   143,612   6.9   14,289   9.9 
    Money market (3)  389,962   15.9   659,861   31.7   (269,899)  (40.9)
    Subtotal  547,863   22.3   803,473   38.6   (255,610)  (31.8)
    Certificates of deposit less than $100,000 (4)  527,032   21.5   345,227   16.6   181,805   52.7 
    Certificates of deposit of $100,000 through $250,000  406,545   16.6   133,429   6.4   273,116   204.7 
    Certificates of deposit of $250,000 and over  83,377   3.4   71,629   3.4   11,748   16.4 
    Subtotal  1,016,954   41.5   550,285   26.4   466,669   84.8 
    Total $2,454,444   100.0% $2,083,338   100.0% $371,106   17.8%


    (1)Includes $50.1 million and $1.2 million of brokered deposits at September 30, 2023, and 2022, respectively, and no brokered deposits as of June 30, 2023.
    (2)Noninterest-bearing accounts.
    (3)Includes $51,000, $51,000 and $66.8 million of brokered deposits at September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
    (4)Includes $323.3 million, $295.7 million and $256.6 million of brokered deposits at September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
      

    At September 30, 2023, CDs, which include retail and nonretail CDs, totaled $1.02 billion, compared to $918.8 million at June 30, 2023 and $550.3 million at September 30, 2022, with nonretail CDs representing 33.2%, 33.7% and 51.7% of total CDs at such dates, respectively. At September 30, 2023, nonretail CDs, which include brokered CDs, online CDs and public funds CDs, increased $27.2 million to $337.2 million, compared to $310.0 million at June 30, 2023, primarily due to an increase of $27.6 million in brokered CDs. Nonretail CDs totaled $337.2 million at September 30, 2023, compared to $284.4 million at September 30, 2022.

    At September 30, 2023, the Bank had uninsured deposits of approximately $591.6 million, compared to approximately $587.6 million at June 30, 2023, and $600.4 million at September 30, 2022.  The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

    At September 30, 2023, borrowings totaled $121.9 million and were comprised of advances from the Federal Reserve Bank's Term Funding Program of $90.0 million, overnight borrowings of $28.0 million, and FHLB fixed-rate advances of $3.9 million.  Borrowings decreased $78.0 million to $121.9 million at September 30, 2023, from $199.9 million at June 30, 2023, and decreased $138.9 million at from $260.8 million at September 30, 2022.  The decrease was partially attributable to a shift in funding mix to brokered CDs.

    Total stockholders’ equity increased $732,000 to $250.7 million at September 30, 2023, from $249.9 million at June 30, 2023, and increased $30.1 million, from $220.5 million at September 30, 2022. The increase in stockholders’ equity at September 30, 2023, compared to June 30, 2023, reflects net income of $9.0 million, partially offset by dividends paid of $1.9 million. In addition, stockholders’ equity was negatively impacted by unrealized net losses in securities available for sale of $9.2 million, net of tax, partially offset by unrealized net gains on fair value and cash flow hedges of $2.3 million, net of tax, reflecting changes in market interest rates during the quarter, resulting in a $7.0 million increase in accumulated other comprehensive loss. Book value per common share was $32.58 at September 30, 2023, compared to $32.71 at June 30, 2023, and $29.07 at September 30, 2022.

    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 13.1%, a Tier 1 leverage capital ratio of 10.3%, and a common equity Tier 1 (“CET1”) capital ratio of 11.8% at September 30, 2023.

    The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 13.4%, a Tier 1 leverage capital ratio of 8.9%, and a CET1 ratio of 10.2% at September 30, 2023.

    Credit Quality

    The allowance for credit losses on loans (“ACLL”) totaled to $30.5 million, or 1.27% of gross loans receivable (excluding loans HFS) at September 30, 2023, compared to $30.4 million, or 1.28% of gross loans receivable (excluding loans HFS), at June 30, 2023, and $26.4 million, or 1.25% of gross loans receivable (excluding loans HFS), at September 30, 2022. The $151,000 increase in the ACLL at September 30, 2023, compared to the prior quarter was primarily due to an increase in loans. The $4.1 million increase in the ACLL at September 30, 2023, compared to the prior year was primarily due to organic loan growth and the addition of loans acquired in the Branch Acquisition. The allowance for credit losses on unfunded loan commitments decreased $149,000 to $1.8 million at September 30, 2023, compared to $1.9 million at June 30, 2023, and decreased $1.3 million from $3.1 million at September 30, 2022. The decreases were attributable to a decline in unfunded construction loan commitments at September 30, 2023.

    Nonperforming loans decreased $3.7 million to $5.6 million at September 30, 2023, compared to $9.3 million at June 30, 2023, and decreased $2.6 million from $8.2 million at September 30, 2022. The decrease in nonperforming loans at September 30, 2023, from the prior quarter was primarily due to decreases in nonperforming commercial business loans of $3.5 million and indirect home improvement loans of $165,000. The decrease in nonperforming loans compared to the prior year was primarily due to decreases in commercial business loans of $4.3 million and one-to-four-family loans of $535,000, partially offset by increases in commercial real estate loans of $1.1 million, indirect home improvement loans of $1.0 million, and marine loans of $225,000. The decrease in the nonperforming commercial business loans between the periods was primarily attributable to a $3.5 million loan being upgraded to performing from nonperforming status.  

    Loans classified as substandard increased $2.8 million to $19.2 million at September 30, 2023, compared to $16.4 million at June 30, 2023, and increased $2.5 million from $16.6 million at September 30, 2022. The increase in substandard loans at September 30, 2023 compared to the prior quarter was primarily attributable to increases of $1.7 million in commercial real estate loans and $956,000 in one-to-four-family loans and compared to the prior year was primarily due to increases of $2.2 million in one-to-four-family loans, $1.0 million in indirect home improvement loans, and $225,000 in marine loans, partially offset by a decrease of $928,000 in commercial business loans. There was one other real estate owned property (“OREO”) in the amount of $570,000 (a closed branch in Centralia, Washington) at both September 30, 2023 and June 30, 2023, compared to one OREO in the amount of $145,000 at September 30, 2022.

    Operating Results

    Net interest income increased $3.1 million to $30.6 million for the three months ended September 30, 2023, from $27.5 million for the three months ended September 30, 2022, primarily as a result of an increase in interest income on loans. Total interest income for the three months ended September 30, 2023, increased $12.0 million compared to the same period last year, primarily due to an increase of $10.3 million in interest income on loans receivable, including fees, impacted primarily as a result of new loans being originated at higher rates and variable rate loans repricing higher following recent increases in market interest rates. Total interest expense for the three months ended September 30, 2023, increased $8.9 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.

    For the nine months ended September 30, 2023, net interest income increased $17.9 million to $92.8 million, from $75.0 million for the nine months ended September 30, 2022, for the same reasons described above for the three-month comparison, with an increase in interest income of $39.9 million and an increase in interest expense of $22.0 million.

    NIM (annualized) decreased 20 basis points to 4.34% for the three months ended September 30, 2023, from 4.54% for the same period in the prior year and increased 17 basis points to 4.56% for the nine months ended September 30, 2023, from 4.39% for the nine months ended September 30, 2022. The changes in NIM for the three and nine months ended September 30, 2023 compared to the same period in 2022, reflects new loan originations at higher market interest rates and variable rate interest-earning assets repricing higher following recent increases in market interest rates, offset by the rising cost of deposits and borrowings. The benefit from higher rates and interest earning assets were partially 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 September 30, 2023, compared to the same period in 2022.

    The average total cost of funds, including noninterest-bearing checking, increased 124 basis points to 1.92% for the three months ended September 30, 2023, from 0.68% for the three months ended September 30, 2022. This increase was predominantly due to the rise in cost for market rates for deposits. The average cost of funds increased 108 basis points to 1.58% for the nine months ended September 30, 2023, from 0.50% for the nine months ended September 30, 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 and nine months ended September 30, 2023, the provision for credit losses on loans was $683,000 and $4.1 million, respectively, compared to $2.0 million and $4.5 million for the three and nine months ended September 30, 2022. The provision for credit losses on loans reflects an increase in total loans receivable and net charge-offs in indirect home improvement and marine loans.

    During the three months ended September 30, 2023, net charge-offs totaled $531,000, compared to $563,000 for the same period last year, primarily due to decreased net charge-offs of $388,000 in deposit overdrafts and $35,000 in marine loans, partially offset by net increases of $387,000 in indirect home improvement loans and $3,000 in other loans. Net charge-offs totaled $1.6 million during the nine months ended September 30, 2023, compared to $843,000 during the nine months ended September 30, 2022. This increase was primarily due to net charge-off increases of $972,000 in indirect home improvement loans, $164,000 in marine loans, $10,000 in home equity loans, and $2,000 in other loans, partially offset by a net decrease of $400,000 in deposit overdrafts charge-offs. Management attributes the increase in net charge-offs over the year primarily to volatile economic conditions.

    Noninterest income increased $801,000 to $5.0 million for the three months ended September 30, 2023, from $4.2 million for the three months ended September 30, 2022. The increase reflects a $1.4 million increase in service charges and fee income, primarily as a result of less amortization of mortgage servicing rights reflecting increased market interest rates and increased servicing fees from non-portfolio serviced loans, and an increase of $473,000 in gain on sale of loans, partially offset by a $1.1 million decrease in other noninterest income. Noninterest income increased $622,000, to $15.0 million, for the nine months ended September 30, 2023, from $14.4 million for the nine months ended September 30, 2022. This increase was primarily the result of a $4.1 million increase in service charges and fee income, partially offset by decreases of $2.0 million in gain on sale of loans and $1.4 million in other noninterest income.

    Noninterest expense increased $4.2 million to $23.6 million for the three months ended September 30, 2023, from $19.3 million for the three months ended September 30, 2022. The increase in noninterest expense was primarily a result of a $2.1 million increase in salaries and benefits largely due to the Branch Acquisition and growth in FTEs. Other increases included $829,000 in amortization of CDI, $597,000 in operations expense, $293,000 in data processing, $244,000 in occupancy expense, and $232,000 in marketing and advertising, offset by a decrease of $182,000 in loan costs. 

    Noninterest expense increased $14.0 million to $71.3 million for the nine months ended September 30, 2023, from $57.3 million for the nine months ended September 30, 2022 primarily for the same reasons stated above. Increases during the nine-month period ended September 30, 2023,as compared to the same period last year included $5.8 million in salaries and benefits, $2.1 million in operations, $2.0 million in amortization of CDI, $1.6 million in acquisition costs, $928,000 in FDIC insurance, $845,000 in occupancy, $729,000 in data processing, and $420,000 in marketing and advertising, offset by a decrease of $386,000 in professional and board fees.

    About FS Bancorp

    FS Bancorp, Inc., a Washington corporation, is the holding company for 1st Security Bank. 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 recent 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; 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 and 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 2023 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 
      September 30,  June 30,  September 30,  Quarter  Over Year 
      2023  2023  2022  % Change  % Change 
    ASSETS                    
    Cash and due from banks $18,137  $17,573  $11,541   3   57 
    Interest-bearing deposits at other financial institutions  62,536   114,526   148,256   (45)  (58)
    Total cash and cash equivalents  80,673   132,099   159,797   (39)  (50)
    Certificates of deposit at other financial institutions  17,636   14,747   4,960   20   256 
    Securities available-for-sale, at fair value  251,917   225,869   227,942   12   11 
    Securities held-to-maturity, net  8,455   8,469   8,469   —   — 
    Loans held for sale, at fair value  18,636   16,714   23,447   11   (21)
    Loans receivable, net  2,375,572   2,342,424   2,083,929   1   14 
    Accrued interest receivable  13,925   12,244   10,407   14   34 
    Premises and equipment, net  30,926   31,293   25,438   (1)  22 
    Operating lease right-of-use  7,042   7,458   6,607   (6)  7 
    Federal Home Loan Bank stock, at cost  3,696   6,555   13,591   (44)  (73)
    Other real estate owned  570   570   145   —   293 
    Deferred tax asset, net  7,424   5,784   6,571   28   13 
    Bank owned life insurance (“BOLI”), net  37,480   37,247   36,578   1   2 
    Servicing rights, held at the lower of cost or fair value  17,657   17,627   18,470   —   (4)
    Goodwill  3,592   3,592   2,312   —   55 
    Core deposit intangible, net  18,323   19,325   3,542   (5)  417 
    Other assets  26,548   23,604   19,933   12   33 
    TOTAL ASSETS $2,920,072  $2,905,621  $2,652,138   —   10 
    LIABILITIES                    
    Deposits:                    
    Noninterest-bearing accounts $670,158  $675,211  $581,612   (1)  15 
    Interest-bearing accounts  1,784,286   1,690,097   1,501,726   6   19 
    Total deposits  2,454,444   2,365,308   2,083,338   4   18 
    Borrowings  121,895   199,896   260,828   (39)  (53)
    Subordinated notes:                    
    Principal amount  50,000   50,000   50,000   —   — 
    Unamortized debt issuance costs  (489)  (506)  (556)  (3)  (12)
    Total subordinated notes less unamortized debt issuance costs  49,511   49,494   49,444   —   — 
    Operating lease liability  7,269   7,690   6,836   (5)  6 
    Other liabilities  36,288   33,300   31,145   9   17 
    Total liabilities  2,669,407   2,655,688   2,431,591   1   10 
    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; 7,796,095 shares issued and outstanding at September 30, 2023, 7,753,607 at June 30, 2023, and 7,704,373 at September 30, 2022  78   77   77   1   1 
    Additional paid-in capital  57,464   56,781   53,769   1   7 
    Retained earnings  222,532   215,519   195,986   3   14 
    Accumulated other comprehensive loss, net of tax  (29,409)  (22,444)  (29,285)  31   — 
    Total stockholders’ equity  250,665   249,933   220,547   —   14 
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $2,920,072  $2,905,621  $2,652,138   —   10 
                         

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

      Three Months Ended  Qtr  Year 
      September 30,  June 30,  September 30,  Over Qtr  Over Year 
      2023  2023  2022  % Change  % Change 
    INTEREST INCOME                    
    Loans receivable, including fees $39,874  $38,216  $29,563   4   35 
    Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions  3,396   2,651   1,741   28   95 
    Total interest and dividend income  43,270   40,867   31,304   6   38 
    INTEREST EXPENSE                    
    Deposits  10,462   7,610   2,596   37   303 
    Borrowings  1,689   1,219   696   39   143 
    Subordinated notes  485   486   485   —   — 
    Total interest expense  12,636   9,315   3,777   36   235 
    NET INTEREST INCOME  30,634   31,552   27,527   (3)  11 
    PROVISION FOR CREDIT LOSSES  548   716   1,718   (23)  (68)
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES  30,086   30,836   25,809   (2)  17 
    NONINTEREST INCOME                    
    Service charges and fee income  2,882   2,862   1,511   1   91 
    Gain on sale of loans  1,875   1,947   1,402   (4)  34 
    Earnings on cash surrender value of BOLI  233   227   221   3   5 
    Other noninterest income  (8)  (203)  1,047   (96)  (101)
    Total noninterest income  4,982   4,833   4,181   3   19 
    NONINTEREST EXPENSE                    
    Salaries and benefits  13,503   13,513   11,402   —   18 
    Operations  3,409   3,643   2,812   (6)  21 
    Occupancy  1,588   1,562   1,344   2   18 
    Data processing  1,841   1,683   1,548   9   19 
    Loan costs  564   1,043   746   (46)  (24)
    Professional and board fees  666   657   631   1   6 
    Federal Deposit Insurance Corporation (“FDIC”) insurance  561   591   462   (5)  21 
    Marketing and advertising  452   430   220   5   105 
    Acquisition costs  —   61   —   NM   — 
    Amortization of core deposit intangible  1,002   1,023   173   (2)  479 
    Recovery of servicing rights  —   (2)  —   NM   — 
    Total noninterest expense  23,586   24,204   19,338   (3)  22 
    INCOME BEFORE PROVISION FOR INCOME TAXES  11,482   11,465   10,652   —   8 
    PROVISION FOR INCOME TAXES  2,529   2,349   2,194   8   15 
    NET INCOME $8,953  $9,116  $8,458   (2)  6 
    Basic earnings per share $1.15  $1.17  $1.09   (2)  6 
    Diluted earnings per share $1.13  $1.16  $1.08   (3)  5 
                         

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

      Nine Months Ended  Year 
      September 30,  September 30,  Over Year 
      2023  2022  % Change 
    INTEREST INCOME            
    Loans receivable, including fees $114,082  $77,885   46 
    Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions  8,667   4,990   74 
    Total interest and dividend income  122,749   82,875   48 
    INTEREST EXPENSE            
    Deposits  24,696   5,438   354 
    Borrowings  3,749   1,003   274 
    Subordinated note  1,456   1,456   — 
    Total interest expense  29,901   7,897   279 
    NET INTEREST INCOME  92,848   74,978   24 
    PROVISION FOR CREDIT LOSSES  3,372   4,632   (27)
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES  89,476   70,346   27 
    NONINTEREST INCOME            
    Service charges and fee income  8,352   4,286   95 
    Gain on sale of loans  5,298   7,325   (28)
    Earnings on cash surrender value of BOLI  681   654   4 
    Other noninterest income  703   2,147   (67)
    Total noninterest income  15,034   14,412   4 
    NONINTEREST EXPENSE            
    Salaries and benefits  40,880   35,110   16 
    Operations  9,744   7,656   27 
    Occupancy  4,670   3,825   22 
    Data processing  5,092   4,363   17 
    Loan costs  2,077   2,020   3 
    Professional and board fees  2,001   2,387   (16)
    FDIC insurance  1,732   804   115 
    Marketing and advertising  1,072   652   64 
    Acquisition costs  1,562   —   — 
    Amortization of core deposit intangible  2,484   518   380 
    Recovery of servicing rights  —   (1)  NM 
    Total noninterest expense  71,314   57,334   24 
    INCOME BEFORE PROVISION FOR INCOME TAXES  33,196   27,424   21 
    PROVISION FOR INCOME TAXES  6,915   5,397   28 
    NET INCOME $26,281  $22,027   19 
    Basic earnings per share $3.38  $2.77   22 
    Diluted earnings per share $3.33  $2.73   22 
                 

    KEY FINANCIAL RATIOS AND DATA (Unaudited)

      For the Three Months Ended 
      September 30,  June 30,  September 30, 
      2023  2023  2022 
    PERFORMANCE RATIOS:            
    Return on assets (ratio of net income to average total assets) (1)  1.22%  1.29%  1.36%
    Return on equity (ratio of net income to average equity) (1)  13.81   14.82   14.72 
    Yield on average interest-earning assets (1)  6.13   6.04   5.16 
    Average total cost of funds (1)  1.92   1.48   0.68 
    Interest rate spread information – average during period  4.21   4.56   4.48 
    Net interest margin (1)  4.34   4.66   4.54 
    Operating expense to average total assets (1)  3.23   3.42   3.10 
    Average interest-earning assets to average interest-bearing liabilities (1)  145.14   147.90   147.92 
    Efficiency ratio (2)  66.22   66.52   60.99 
                 


      For the Nine Months Ended 
      September 30,  September 30, 
      2023  2022 
    PERFORMANCE RATIOS:        
    Return on assets (ratio of net income to average total assets) (1)  1.25%  1.25%
    Return on equity (ratio of net income to average equity) (1)  14.13   12.51 
    Yield on average interest-earning assets (1)  6.03   4.86 
    Average total cost of funds (1)  1.58   0.50 
    Interest rate spread information – average during period  4.45   4.36 
    Net interest margin (1)  4.56   4.39 
    Operating expense to average total assets (1)  3.39   3.25 
    Average interest-earning assets to average interest-bearing liabilities  146.23   151.52 
    Efficiency ratio (2)  66.10   64.14 
             


      September 30,  June 30,  September 30, 
      2023  2023  2022 
    ASSET QUALITY RATIOS AND DATA:            
    Nonperforming assets to total assets at end of period (3)  0.21%  0.34%  0.32%
    Nonperforming loans to total gross loans (excluding loans held for sale) (4)  0.23   0.39   0.39 
    Allowance for credit losses – loans to nonperforming loans (4)  493.46   327.75   315.35 
    Allowance for credit losses – loans to total gross loans (excluding loans held for sale)  1.27   1.28   1.25 
                 


      At or For the Three Months Ended 
      September 30,  June 30,  September 30, 
      2023  2023  2022 
    PER COMMON SHARE DATA:            
    Basic earnings per share $1.15  $1.17  $1.09 
    Diluted earnings per share $1.13  $1.16  $1.08 
    Weighted average basic shares outstanding  7,667,981   7,637,210   7,605,360 
    Weighted average diluted shares outstanding  7,780,430   7,746,336   7,707,762 
    Common shares outstanding at end of period  7,693,951 (5)  7,641,342 (6)  7,585,843 (7)
    Book value per share using common shares outstanding $32.58  $32.71  $29.07 
    Tangible book value per share using common shares outstanding (8) $29.73  $29.71  $28.30 
                 


    (1)Annualized.
    (2)Total noninterest expense as a percentage of net interest income and total noninterest income.
    (3)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.
    (4)Nonperforming loans consist of nonaccruing loans and accruing loans 90 days or more past due.
    (5)Common shares were calculated using shares outstanding of 7,796,095 at September 30, 2023, less 102,144 unvested restricted stock shares.
    (6)Common shares were calculated using shares outstanding of 7,753,607 at June 30, 2023, less 112,265 unvested restricted stock shares.
    (7)Common shares were calculated using shares outstanding of 7,704,373 at September 30, 2022, less 118,530 unvested restricted stock shares.
    (8)Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” below.
      


    (Dollars in thousands) For the Three Months Ended September 30,  For the Nine Months Ended September 30,  QTR Over QTR  Year Over Year 
    Average Balances 2023  2022  2023  2022  $ Change  $ Change 
    Assets                        
    Loans receivable, net (1) $2,423,691  $2,083,561  $2,362,885  $1,953,305  $340,130  $409,580 
    Securities available-for-sale, at amortized cost  294,148   277,006   276,835   279,395   17,142   (2,560)
    Securities held-to-maturity  8,500   8,500   8,500   7,943   -   557 
    Interest-bearing deposits and certificates of deposit at other financial institutions  68,369   29,080   67,163   34,705   39,289   32,458 
    FHLB stock, at cost  4,626   7,924   5,190   5,716   (3,298)  (526)
    Total interest-earning assets  2,799,334   2,406,071   2,720,573   2,281,064   393,263   439,509 
    Noninterest-earning assets  102,052   93,911   88,936   95,302   8,141   (6,366)
    Total assets $2,901,386  $2,499,982  $2,809,509  $2,376,366  $401,404  $433,143 
    Liabilities                        
    Interest-bearing accounts $1,741,257  $1,458,047  $1,703,688  $1,391,181  $283,210  $312,507 
    Borrowings  138,013   119,150   107,254   64,855   18,863   42,399 
    Subordinated notes  49,500   49,434   49,484   49,417   66   67 
    Total interest-bearing liabilities  1,928,770   1,626,631   1,860,426   1,505,453   302,139   354,973 
    Noninterest-bearing accounts  676,000   588,492   664,319   588,172   87,508   76,147 
    Other noninterest-bearing liabilities  39,365   32,654   36,095   31,342   6,711   4,753 
    Total liabilities $2,644,135  $2,247,777  $2,560,840  $2,124,967  $396,358  $435,873 

    (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) September 30,  June 30,  September 30, 
    Tangible Book Value Per Share: 2023  2023  2022 
    Stockholders' equity (GAAP) $250,665  $249,933  $220,547 
    Less: goodwill and core deposit intangible, net  (21,915)  (22,917)  (5,854)
    Tangible common stockholders' equity (non-GAAP) $228,750  $227,016  $214,693 
                 
    Common shares outstanding at end of period  7,693,951   7,641,342   7,585,843 
                 
    Book value per share (GAAP) $32.58  $32.71  $29.07 
    Tangible book value per share (non-GAAP) $29.73  $29.71  $28.30 
                 
    Tangible Common Equity Ratio:            
    Total assets (GAAP) $2,920,072  $2,905,621  $2,652,138 
    Less: goodwill and core deposit intangible assets  (21,915)  (22,917)  (5,854)
    Tangible assets (non-GAAP) $2,898,157  $2,882,704  $2,646,284 
                 
    Common equity ratio (GAAP)  8.58%  8.60%  8.32%
    Tangible common equity ratio (non-GAAP)  7.89   7.88   8.11 
                 

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


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