• FS Bancorp, Inc. Reports Net Income for the Third Quarter of $8.5 Million or $1.08 Per Diluted Share and the Thirty-Ninth Consecutive Quarterly Dividend

    来源: Nasdaq GlobeNewswire / 26 10月 2022 17:00:01   America/New_York

    MOUNTLAKE TERRACE, Wash., Oct. 26, 2022 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2022 third quarter net income of $8.5 million, or $1.08 per diluted share, compared to $8.3 million, or $0.98 per diluted share for the same quarter last year.   For the nine months ended September 30, 2022, net income was $22.0 million, or $2.73 per diluted share, compared to net income of $28.8 million, or $3.31 per diluted share, for the comparable nine-month period in 2021.

    “Continued loan growth in the third quarter was a result of disciplined credit culture and a focus on hiring employees that understand 1st Security Bank’s commitment to relationships, risk management, and partnering with customers in our communities,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our thirty-ninth consecutive quarterly cash dividend. The quarterly dividend of $0.20 will be paid on November 23, 2022, to shareholders of record as of November 9, 2022.”

    “Organic loan growth was partially funded by loan pool sales during the quarter which supplemented deposit growth,” noted Matthew Mullet, CFO.   “Net interest margin expansion was a result of loan growth and assets that have repriced faster than deposit liabilities.”

    2022 Third Quarter Highlights

    • Net income was $8.5 million for the third quarter of 2022, compared to $6.7 million in the previous quarter, and $8.3 million for the comparable quarter one year ago;
    • Net interest margin (“NIM”) improved to 4.54%, compared to 4.39% for the previous quarter, and 4.23% for the comparable quarter one year ago;
    • Repurchased 74,073 shares of our common stock during the third quarter at an average price of $30.22 per common share;
    • Loans receivable, net increased $137.9 million, or 7.1%, to $2.08 billion at September 30, 2022, compared to $1.95 billion at June 30, 2022, and increased $405.9 million, or 24.2% from $1.68 billion at September 30, 2021;
    • Consumer loans, of which 86.3% are home improvement loans, increased $33.2 million, or 6.8%, to $518.6 million at September 30, 2022, compared to $485.3 million in the previous quarter and increased $107.5 million, or 26.1% from $411.1 million in the comparable quarter one year ago. During the three months ended September 30, 2022, originations in the consumer portfolio included 80.8% of home improvement loans originated with a Fair Isaac and Company, Incorporated (“FICO”) score above 720 and 87.9% of home improvement loans with a UCC-2 security filing;
    • Segment reporting reflected $9.3 million of net income for the Commercial and Consumer Banking segment and $794,000 of net loss for the Home Lending segment in the third quarter of 2022, compared to $4.5 million and $3.8 million of net income in the third quarter of 2021, respectively; and
    • Capital levels at the Bank were 13.7% for total risk-based capital and 11.5% for Tier 1 leverage capital at September 30, 2022.

    Segment Reporting

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

    The tables below are a summary of segment reporting for the three and nine months ended September 30, 2022 and 2021:

              
      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) benefit for credit losses (2)  (1,811)  93   (1,718)
    Noninterest income (3)  3,314   867   4,181 
    Noninterest expense  (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 
    Full-time employees ("FTEs")  389   140   529 


              
      At or For the Three Months Ended September 30, 2021
    Condensed income statement: Commercial
    and Consumer
    Banking    		 Home Lending Total
    Net interest income (1) $20,377  $2,278  $22,655 
    (Provision) benefit for loan losses (2)  (1,986)  1,986   — 
    Noninterest income (3)  1,959   6,439   8,398 
    Noninterest expense  (14,404)  (5,612)  (20,016)
    Income before provision for income taxes  5,946   5,091   11,037 
    Provision for income taxes  (1,462)  (1,244)  (2,706)
    Net income $4,484  $3,847  $8,331 
    Total average assets for period ended $1,799,890  $417,763  $2,217,653 
    FTEs  373   154   527 


              
      At or For the Nine Months Ended September 30, 2022
      Commercial    
      and Consumer    
    Condensed income statement: Banking Home Lending Total
    Net interest income (1) $66,983  $7,995  $74,978 
    Provision for loan losses (2)  (3,727)  (905)  (4,632)
    Noninterest income (3)  7,944   6,468   14,412 
    Noninterest expense  (42,878)  (14,456)  (57,334)
    Income (loss) before provision 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 


              
      At or For the Nine Months Ended September 30, 2021
      Commercial    
      and Consumer    
    Condensed income statement: Banking Home Lending Total
    Net interest income (1) $57,829  $6,146  $63,975 
    (Provision) benefit for loan losses (2)  (3,045)  1,545   (1,500)
    Noninterest income (3)  6,546   23,072   29,618 
    Noninterest expense  (41,151)  (14,132)  (55,283)
    Income before provision for income taxes  20,179   16,631   36,810 
    Provision for income taxes  (4,411)  (3,636)  (8,047)
    Net income $15,768  $12,995  $28,763 
    Total average assets for period ended $1,771,216  $402,693  $2,173,909 
    FTEs  373   154   527 

    __________________________
    (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) Provision for credit losses as calculated using the Current Expected Credit Loss (“CECL”) method adopted January 1, 2022, and provision for loan losses as calculated using the previous incurred loss method in 2021. The change in methodology reflects shifts in allocation between segments due to various changes, adjustments to qualitative factors, changes in loan balances, and charge-off and recovery activity.
    (3) Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value; after origination, the loans were 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, 2022, the Company recorded net decreases in fair value of $816,000 and $1.8 million, as compared to net decreases in fair value of $19,000 and $55,000 for the three and nine months ended September 30, 2021, respectively. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans. As of September 30, 2022 and December 31, 2021, there were $14.2 million and $16.1 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from held for sale to loans held for investment.

    Asset Summary

    Total assets increased $252.9 million, or 10.5%, to $2.65 billion at September 30, 2022, compared to $2.40 billion at June 30, 2022, and increased $423.4 million, or 19.0%, from $2.23 billion at September 30, 2021.  The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $137.9 million, total cash and cash equivalents of $131.1 million, Federal Home Loan Bank (“FHLB”) stock of $7.3 million, and other assets of $3.6 million, partially offset by decreases in securities available-for-sale of $19.9 million and loans held for sale (“HFS”) of $11.5 million. The year over year increase was primarily due to increases in loans receivable, net of $405.9 million, cash and cash equivalents of $131.5 million, other assets of $8.8 million, FHLB stock of $8.7 million, and deferred tax asset, net of $6.3 million, partially offset by decreases in loans HFS of $94.7 million, securities available-for-sale of $40.9 million, and certificates of deposit (“CDs”) at other financial institutions of $6.8 million.

                     
    LOAN PORTFOLIO                
    (Dollars in thousands) September 30, 2022 June 30, 2022 September 30, 2021 
      Amount Percent Amount Percent Amount Percent 
    REAL ESTATE LOANS                
    Commercial $310,923  14.7%$299,181  15.2%$217,568  12.8%
    Construction and development  335,177  15.9  304,387  15.4  248,239  14.5 
    Home equity  53,681  2.6  49,292  2.5  42,554  2.5 
    One-to-four-family (excludes HFS)  429,196  20.3  390,791  19.8  365,155  21.4 
    Multi-family  223,712  10.6  204,862  10.4  164,731  9.7 
    Total real estate loans  1,352,689  64.1  1,248,513  63.3  1,038,247  60.9 
                     
    CONSUMER LOANS                
    Indirect home improvement  447,462  21.2  396,459  20.1  321,741  18.9 
    Marine  68,106  3.2  85,806  4.4  86,086  5.0 
    Other consumer  2,987  0.2  3,062  0.2  3,267  0.2 
    Total consumer loans  518,555  24.6  485,327  24.7  411,094  24.1 
                     
    COMMERCIAL BUSINESS LOANS                
    Commercial and industrial  211,009  10.0  203,331  10.3  206,483  12.1 
    Warehouse lending  28,102  1.3  33,868  1.7  49,144  2.9 
    Total commercial business loans  239,111  11.3  237,199  12.0  255,627  15.0 
    Total loans receivable, gross  2,110,355  100.0% 1,971,039  100.0% 1,704,968  100.0%
                     
    Allowance for credit losses on loans (1)  (26,426)    (24,967)    (26,925)   
    Total loans receivable, net $2,083,929    $1,946,072    $1,678,043    

    ____________________________
    (1) Allowance in 2022 reported using the CECL method, all 2021 and prior periods’ allowance are reported in accordance with previous GAAP using the incurred loss method.


    Loans receivable, net increased $137.9 million to $2.08 billion at September 30, 2022, from $1.95 billion at June 30, 2022, and increased $405.9 million from $1.68 billion at September 30, 2021. The quarter over linked quarter increase in total real estate loans was $104.2 million, including increases in one-to-four-family loans of $38.4 million, construction and development loans of $30.8 million, multi-family loans of $18.9 million, commercial real estate loans of $11.7 million and home equity loans of $4.4 million. Consumer loans increased $33.2 million, primarily due to an increase of $51.0 million in indirect home improvement loans, partially offset by a decrease of $17.7 million in marine loans, primarily due to the sale of $25.6 million of these loans (servicing released) in the third quarter. Commercial business loans increased $1.9 million, as a result of an increase of $7.7 million in commercial and industrial lending, partially offset by a decrease of $5.8 million in warehouse lending.

    Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended September 30, 2022 and June 30, 2022, and for the three and nine months ended September 30, 2022 and 2021 were as follows:

                        
    (Dollars in thousands) For the Three Months Ended   For the Three Months Ended   Quarter Quarter
      September 30, 2022   June 30, 2022   over Quarter over Quarter
      Amount Percent   Amount Percent   $ Change % Change
    Purchase $172,639 89.1%  $223,675 86.4%  $(51,036) (22.8)
    Refinance  21,096 10.9    35,074 13.6    (13,978) (39.9)
    Total $193,735 100.0%  $258,749 100.0%  $(65,014) (25.1)


                        
    (Dollars in thousands) For the Three Months Ended   For the Three Months Ended   Year Year
      September 30, 2022   September 30, 2021   over Year over Year
      Amount Percent   Amount Percent   $ Change % Change
    Purchase $172,639 89.1%  $243,721 64.0%  $(71,082) (29.2)
    Refinance  21,096 10.9    136,803 36.0    (115,707) (84.6)
    Total $193,735 100.0%  $380,524 100.0%  $(186,789) (49.1)


                        
    (Dollars in thousands) For the Nine Months Ended   For the Nine Months Ended   Year Year
      September 30, 2022   September 30, 2021   over Year over Year
      Amount Percent   Amount Percent   $ Change % Change
    Purchase $549,259 78.7%  $682,181 56.3%  $(132,922) (19.5)
    Refinance  148,335 21.3    529,705 43.7    (381,370) (72.0)
    Total $697,594 100.0%  $1,211,886 100.0%  $(514,292) (42.4)

    During the quarter ended September 30, 2022, the Company sold $142.3 million of one-to-four-family loans compared to sales of $196.3 million during the previous quarter, and sales of $319.9 million during the same quarter one year ago. The decrease in purchase and refinance activity compared to the prior quarter reflects the impact of rising market interest rates.

    The Company also sold $25.6 million of marine loans and $12.9 million of one-to-four-family portfolio loans during the third quarter with gains on sale of $358,000 and $238,000, respectively, to supplement liquidity.

    Gross margins on home loan sales decreased to 2.85% for the quarter ended September 30, 2022, compared to 3.10% in the previous quarter and decreased from 3.61% in the same quarter one year ago. Gross margins are defined as the margin on loans sold (cash sales) without the impact of deferred costs.

    Liabilities and Equity Summary

    Changes in deposits at the dates indicated are as follows:

                    
    (Dollars in thousands)               
      September 30, 2022 June 30, 2022     
    Transactional deposits: Amount Percent Amount Percent $ Change % Change
    Noninterest-bearing checking $555,753 26.7%$571,942 28.4%$(16,189) (2.8)
    Interest-bearing checking (1)  147,968 7.1  158,607 7.8  (10,639) (6.7)
    Escrow accounts related to mortgages serviced  25,859 1.2  16,422 0.8  9,437  57.5 
    Subtotal  729,580 35.0  746,971 37.0  (17,391) (2.3)
    Savings  143,612 6.9  156,313 7.8  (12,701) (8.1)
    Money market (2)  659,861 31.7  680,246 33.7  (20,385) (3.0)
    Subtotal  803,473 38.6  836,559 41.5  (33,086) (4.0)
    Certificates of deposit less than $100,000 (3)  345,227 16.6  262,199 13.0  83,028  31.7 
    Certificates of deposit of $100,000 through $250,000  133,429 6.4  116,559 5.8  16,870  14.5 
    Certificates of deposit of $250,000 and over  71,629 3.4  53,812 2.7  17,817  33.1 
    Subtotal  550,285 26.4  432,570 21.5  117,715  27.2 
    Total $2,083,338 100.0%$2,016,100 100.0%$67,238  3.3 


                    
    (Dollars in thousands)               
      September 30, 2022 September 30, 2021     
    Transactional deposits: Amount Percent Amount Percent $ Change % Change
    Noninterest-bearing checking (4) $555,753 26.7%$536,952 28.8%$18,801  3.5 
    Interest-bearing checking (1)(4)  147,968 7.1  194,281 10.4  (46,313) (23.8)
    Escrow accounts related to mortgages serviced  25,859 1.2  23,515 1.3  2,344  10.0 
    Subtotal  729,580 35.0  754,748 40.5  (25,168) (3.3)
    Savings  143,612 6.9  191,487 10.3  (47,875) (25.0)
    Money market (2)  659,861 31.7  497,571 26.7  162,290  32.6 
    Subtotal  803,473 38.6  689,058 37.0  114,415  16.6 
    Certificates of deposit less than $100,000 (3)  345,227 16.6  231,453 12.4  113,774  49.2 
    Certificates of deposit of $100,000 through $250,000  133,429 6.4  126,095 6.8  7,334  5.8 
    Certificates of deposit of $250,000 and over  71,629 3.4  62,296 3.3  9,333  15.0 
    Subtotal  550,285 26.4  419,844 22.5  130,441  31.1 
    Total $2,083,338 100.0%$1,863,650 100.0%$219,688  11.8 

    _________________________
    (1) Includes $1.2 million of brokered deposits at both September 30, 2022 and June 30, 2022, and $60.0 million of brokered deposits at September 30, 2021.
    (2) Includes $66.8 million, $78.8 million, and $5.0 million of brokered deposits at September 30, 2022, June 30, 2022, and September 30, 2021, respectively.
    (3) Includes $256.6 million, $180.3 million, and $135.5 million of brokered deposits at September 30, 2022, June 30, 2022, and September 30, 2021, respectively.
    (4) Prior presentation of interest-bearing checking balances was revised due to the misclassification of certain checking products in previous periods. As a result of the misclassification, interest-bearing checking balances of $113.9 million as of September 30, 2021, were reclassified to noninterest-bearing checking for comparative purposes. Balances as of the dates and average values included herein have been updated to reflect the reclassification.

    At September 30, 2022, nonretail CDs, which include brokered CDs, online CDs, and public funds CDs, increased $76.6 million to $284.4 million, compared to $207.8 million at June 30, 2022, due to an increase of $76.3 million in brokered CDs. The year over year increase in nonretail CDs of $131.8 million from $152.6 million at September 30, 2021, was primarily the result of a $121.0 million increase in brokered CDs.   

    At September 30, 2022, borrowings comprised of FHLB advances increased $182.8 million, or 234.3%, to $260.8 million from $78.0 million at June 30, 2022, and increased $218.3 million, or 513.3% from $42.5 million at September 30, 2021.

    Total stockholders’ equity decreased $2.1 million, to $220.5 million at September 30, 2022, from $222.6 million at June 30, 2022, and decreased $19.9 million, from $240.5 million at September 30, 2021. The decrease in stockholders’ equity during the current quarter reflects net income of $8.5 million, partially offset by share repurchases totaling $2.2 million, and dividends paid of $1.5 million. In addition, stockholders’ equity was adversely impacted by increased unrealized losses in securities available-for-sale of $11.4 million, net of tax, reflecting increases in market interest rates during the quarter, partially offset by unrealized gains on fair value and cash flow hedges of $3.8 million, net of tax, resulting in a net $7.6 million increase in accumulated other comprehensive loss, net of tax. The Company repurchased 74,073 shares of its common stock at an average price of $30.22 per share. Book value per common share was $29.07 at September 30, 2022, compared to $29.27 at June 30, 2022, and $29.78 at September 30, 2021.

    The Bank is well capitalized under the minimum 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 11.5%, and a common equity Tier 1 (“CET1”) capital ratio of 12.5% at September 30, 2022.

    The Company exceeded all regulatory capital requirements with a total risk-based capital ratio of 14.0%, a Tier 1 leverage capital ratio of 9.8%, and a CET1 ratio of 10.6% at September 30, 2022.

    Credit Quality

    The allowance for credit losses on loans (“ACLL”) at September 30, 2022, increased to $26.4 million, or 1.25% of gross loans receivable, excluding loans HFS, compared to $25.0 million, or 1.27% of gross loans receivable, excluding loans HFS at June 30, 2022, and decreased from $26.9 million, or 1.58% of gross loans receivable, excluding loans HFS, at September 30, 2021. The quarter over quarter increase of $1.4 million in the ACLL was primarily due to the increase in loans and increased reserves on individually evaluated nonaccrual commercial business loans. The year over year decrease in the ACLL was primarily due to the one-time cumulative-effect adjustment of $2.9 million as of the CECL adoption date of January 1, 2022, partially offset by an increase of $2.4 million in the ACLL due to the growth in loans. The allowance for credit losses on unfunded loan commitments decreased $305,000 to $3.1 million at September 30, 2022, compared to $3.4 million at June 30, 2022, and increased $2.6 million from $496,000 at September 30, 2021. The year over year increase was primarily due to the one-time cumulative-effect adjustment of $2.4 million as of the CECL adoption date and increases in unfunded loan commitments.

    Nonperforming loans increased $1.6 million to $8.2 million at September 30, 2022, from $6.7 million at June 30, 2022, and increased $2.3 million from $5.9 million at September 30, 2021. The increase in nonperforming loans quarter over linked quarter and year over year was primarily due to an increase in nonperforming commercial business loans.

    Loans classified as substandard increased $6.0 million to $16.6 million at September 30, 2022, compared to $10.6 million at June 30, 2022, and decreased $900,000 from $17.5 million at September 30, 2021. The quarter over linked quarter increase in substandard loans was attributable to increases of $3.6 million in commercial real estate loans and $2.3 million in commercial and industrial loans. The year over year decrease in substandard loans was primarily due to decreases of $1.8 million in commercial and industrial loans and $1.5 million in one-to-four-family loans, partially offset by an increase of $2.6 million in commercial real estate loans. There was one other real estate owned (“OREO”) property in the amount of $145,000 at September 30, 2022, and at June 30, 2022, compared to none at September 30, 2021.

    At September 30, 2022, the Company had two commercial business loans totaling $3.8 million classified as troubled debt restructured (“TDRs”) loans, compared to none at June 30, 2022 and at September 30, 2021. These TDRs were nonaccrual loans at September 30, 2022 and December 31, 2021.

    Operating Results

    Net interest income increased $4.9 million, to $27.5 million for the three months ended September 30, 2022, from $22.7 million for the three months ended September 30, 2021. This comparable quarter over quarter increase was primarily the result of an improved mix of loans versus other interest-bearing assets and increased balances in higher yielding loans.   Interest income increased $6.3 million, primarily due to an increase of $6.0 million in interest income on loans receivable, including fees, impacted primarily by loan growth. Interest expense increased $1.4 million, primarily as a result of higher market interest rates and increased borrowings.

    For the nine months ended September 30, 2022, net interest income increased by $11.0 million, to $75.0 million, from $64.0 million for the nine months ended September 30, 2021 for the same reasons as for the three-month comparison described above, with an increase in interest income of $11.3 million and a slight increase in interest expense of $284,000.

    NIM increased 31 basis points to 4.54% for the three months ended September 30, 2022, from 4.23% for the same period in the prior year, and increased 28 basis points to 4.39% for the nine months ended September 30, 2022, from 4.11% for the nine months ended September 30, 2021. The increase in NIM between both the three and nine months ended September 30, 2022 and 2021, respectively, reflects new loan originations at higher market interest rates, variable rate interest-earning assets repricing higher following recent increases in market interest rates, and an improved asset mix of higher yielding assets as low yielding excess cash funded higher yielding loans.

    The average total cost of funds, including noninterest-bearing checking, increased 20 basis points to 0.68% for the three months ended September 30, 2022, from 0.48% for the three months ended September 30, 2021. This increase was predominantly due to the rise in cost for market rate deposits and an increase in higher cost borrowings. The average cost of funds decreased three basis points to 0.50% for the nine months ended September 30, 2022, from 0.53% for the nine months ended September 30, 2021, partially due to runoff of higher cost retail CDs during the prior period, resulting in less interest expense this period. 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, 2022, the provision for credit losses on loans was $2.0 million and $4.5 million, respectively, compared to none and $1.5 million for the three and nine months ended September 30, 2021, respectively, as calculated under the prior incurred loss methodology. The provision for credit losses on loans reflects the increase in total loans receivable and increased reserves on individually evaluated nonaccrual commercial business loans.

    For the three and nine months ended September 30, 2022, the (benefit) provision for credit losses on unfunded commitments was ($305,000) and $180,000, respectively, compared to provisions of $159,000 and $614,000, for the three and nine months ended September 30, 2021, respectively.

    During the three months ended September 30, 2022, net charge-offs totaled $563,000, compared to $309,000 for the same period last year. The increase in net charge-offs was primarily due to a net charge-off increase of $373,000 in other consumer loans (which includes deposit overdraft net charge-offs of $396,000), partially offset by reductions in charge-offs of $99,000 in indirect home improvement loans and $19,000 in marine loans.   Net charge-offs totaled $843,000 during the nine months ended September 30, 2022, compared to $747,000 during the nine months ended September 30, 2021. This increase was primarily due to a net charge-off increase of $325,000 in other consumer loans (which includes an increase in deposit overdraft net charge-offs of $333,000), partially offset by reductions in net charge-offs of $187,000 in indirect home improvement loans, $38,000 in commercial business loans, and $4,000 in marine loans.

    Noninterest income decreased $4.2 million, to $4.2 million, for the three months ended September 30, 2022, from $8.4 million for the three months ended September 30, 2021. The decrease from the same period last year primarily reflects a $5.5 million decrease in gain on sale of loans due to a reduction in origination and sales volume of loans HFS and a reduction in gross margins of sold loans, partially offset by increases of $825,000 in other noninterest income primarily from bank owned life insurance (“BOLI”) death benefits and $438,000 in service charges and fee income as a result of less amortization of mortgage servicing rights reflecting increased market interest rates and increased servicing fees from non-portfolio serviced loans. Noninterest income decreased $15.2 million, to $14.4 million, for the nine months ended September 30, 2022, from $29.6 million for the nine months ended September 30, 2021. This decrease was primarily the result of a $17.6 million decrease in gain on sale of loans, partially offset by increases of $1.3 million in service charges and fee income and $1.2 million in other noninterest income due primarily to the same reasons as for the three-month comparison described above.

    Noninterest expense decreased $678,000, to $19.3 million for the three months ended September 30, 2022, from $20.0 million for the three months ended September 30, 2021. The decrease in noninterest expense primarily reflects a reduction of $1.4 million in salaries and benefits, primarily due to a reduction in incentive compensation. Noninterest expense increased $2.1 million, to $57.3 million for the nine months ended September 30, 2022, from $55.3 million for the nine months ended September 30, 2021. The increase as compared to the same period last year was primarily due to a reduction in the recovery of servicing rights to $1,000 from $2.1 million, along with increases of $544,000 in data processing, $313,000 in FDIC insurance, $233,000 in occupancy, and $223,000 in marketing and advertising, partially offset by a decrease of $1.2 million in salaries and benefits, primarily due to a reduction in incentive compensation and employee stock option plan expense.

    About FS Bancorp

    FS Bancorp, Inc., a Washington corporation, is the holding company for 1st Security Bank of Washington. The Bank provides loan and deposit services to customers who are predominantly small- and middle-market businesses and individuals in Western Washington through its 21 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 Tri-Cities, and in Vancouver, Washington. The Bank services home mortgage customers throughout Washington State with an emphasis in 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 caused by increasing political instability from acts of war, including Russia’s invasion of Ukraine, as well as increasing oil prices and supply chain disruptions, and any governmental or societal response to the COVID-19 pandemic, including the possibility of new COVID-19 variants, 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; legislative and regulatory changes, including as a result of the COVID-19 pandemic; and other factors described in the Company’s latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with 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 2022 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 
      2022  2022  2021  % Change % Change 
    ASSETS           
    Cash and due from banks $11,541  $12,708  $11,426  (9) 1  
    Interest-bearing deposits at other financial institutions  148,256   15,951   16,906  829  777  
    Total cash and cash equivalents  159,797   28,659   28,332  458  464  
    Certificates of deposit at other financial institutions  4,960   4,960   11,782  —  (58) 
    Securities available-for-sale, at fair value  227,942   247,832   268,802  (8) (15) 
    Securities held-to-maturity, net  8,469   8,469   7,500  —  13  
    Loans held for sale, at fair value  23,447   34,989   118,106  (33) (80) 
    Loans receivable, net  2,083,929   1,946,072   1,678,043  7  24  
    Accrued interest receivable  10,407   8,553   7,797  22  33  
    Premises and equipment, net  25,438   25,740   27,243  (1) (7) 
    Operating lease right-of-use  6,607   4,850   4,875  36  36  
    Federal Home Loan Bank (“FHLB”) stock, at cost  13,591   6,295   4,871  116  179  
    Other real estate owned (“OREO”)  145   145   —  —  —  
    Deferred tax asset, net  6,571   4,709   303  40  2,069  
    Bank owned life insurance (“BOLI”), net  36,578   37,106   36,873  (1) (1) 
    Servicing rights, held at the lower of cost or fair value  18,470   18,516   16,497  —  12  
    Goodwill  2,312   2,312   2,312  —  —  
    Core deposit intangible, net  3,542   3,715   4,220  (5) (16) 
    Other assets  19,933   16,317   11,138  22  79  
    TOTAL ASSETS $2,652,138  $2,399,239  $2,228,694  11  19  
    LIABILITIES              
    Deposits:              
    Noninterest-bearing accounts $581,612  $588,364  $560,467  (1) 4  
    Interest-bearing accounts  1,501,726   1,427,736   1,303,183  5  15  
      Total deposits  2,083,338   2,016,100   1,863,650  3  12  
    Borrowings  260,828   78,028   42,528  234  513  
    Subordinated notes:              
    Principal amount  50,000   50,000   50,000  —  —  
    Unamortized debt issuance costs  (556)  (573)  (623) (3) (11) 
      Total subordinated notes less unamortized debt issuance costs  49,444   49,427   49,377  —  —  
    Operating lease liability  6,836   5,081   5,097  35  34  
    Other liabilities  31,145   27,962   27,589  11  13  
      Total liabilities  2,431,591   2,176,598   1,988,241  12  22  
    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; 7,704,373 shares issued and outstanding at September 30, 2022, 7,726,232 at June 30, 2022, and 8,208,045 at September 30, 2021  77   77   82  —  (6) 
    Additional paid-in capital  53,769   55,129   68,481  (2) (21) 
    Retained earnings  195,986   189,075   171,786  4  14  
    Accumulated other comprehensive (loss) income, net of tax  (29,285)  (21,640)  198  35  (14,890) 
    Unearned shares – Employee Stock Ownership Plan (“ESOP”)  —   —   (94) —  (100) 
    Total stockholders’ equity  220,547   222,641   240,453  (1) (8) 
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $2,652,138  $2,399,239  $2,228,694  11  19  
     
     

    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
      2022 2022 2021  % Change % Change
    INTEREST INCOME             
    Loans receivable, including fees $29,563 $25,275 $23,520  17  26 
    Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions  1,741  1,670  1,487  4  17 
    Total interest and dividend income  31,304  26,945  25,007  16  25 
    INTEREST EXPENSE             
    Deposits  2,596  1,557  1,629  67  59 
    Borrowings  696  174  227  300  207 
    Subordinated notes  485  485  496  —  (2)
    Total interest expense  3,777  2,216  2,352  70  61 
    NET INTEREST INCOME  27,527  24,729  22,655  11  22 
    PROVISION FOR CREDIT LOSSES  1,718  1,871  —  (8) — 
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES  25,809  22,858  22,655  13  14 
    NONINTEREST INCOME             
    Service charges and fee income  1,511  1,762  1,073  (14) 41 
    Gain on sale of loans  1,402  2,066  6,885  (32) (80)
    Earnings on cash surrender value of BOLI  221  216  218  2  1 
    Other noninterest income  1,047  311  222  237  372 
    Total noninterest income  4,181  4,355  8,398  (4) (50)
    NONINTEREST EXPENSE             
    Salaries and benefits  11,402  11,736  12,790  (3) (11)
    Operations  2,812  2,365  2,628  19  7 
    Occupancy  1,344  1,258  1,227  7  10 
    Data processing  1,548  1,455  1,309  6  18 
    Loan costs  746  751  842  (1) (11)
    Professional and board fees  631  763  757  (17) (17)
    Federal Deposit Insurance Corporation (“FDIC”) insurance  462  185  120  150  285 
    Marketing and advertising  220  244  177  (10) 24 
    Amortization of core deposit intangible  173  172  177  1  (2)
    (Recovery) impairment of servicing rights  —  —  (11) —  NM 
    Total noninterest expense  19,338  18,929  20,016  2  (3)
    INCOME BEFORE PROVISION FOR INCOME TAXES  10,652  8,284  11,037  29  (3)
    PROVISION FOR INCOME TAXES  2,194  1,585  2,706  38  (19)
    NET INCOME $8,458 $6,699 $8,331  26  2 
    Basic earnings per share (1) $1.09 $0.84 $1.01  30  8 
    Diluted earnings per share (1) $1.08 $0.83 $0.98  30  10 
     
     

    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
      2022  2021  % Change
    INTEREST INCOME        
    Loans receivable, including fees $77,885  $67,538  15 
    Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions  4,990   4,050  23 
    Total interest and dividend income  82,875   71,588  16 
    INTEREST EXPENSE        
    Deposits  5,438   5,481  (1)
    Borrowings  1,003   895  12 
    Subordinated note  1,456   1,237  18 
    Total interest expense  7,897   7,613  4 
    NET INTEREST INCOME  74,978   63,975  17 
    PROVISION FOR CREDIT LOSSES  4,632   1,500  209 
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES  70,346   62,475  13 
    NONINTEREST INCOME        
    Service charges and fee income  4,286   3,026  42 
    Gain on sale of loans  7,325   24,962  (71)
    Earnings on cash surrender value of BOLI  654   647  1 
    Other noninterest income  2,147   983  118 
    Total noninterest income  14,412   29,618  (51)
    NONINTEREST EXPENSE        
    Salaries and benefits  35,110   36,331  (3)
    Operations  7,656   7,760  (1)
    Occupancy  3,825   3,592  6 
    Data processing  4,363   3,819  14 
    Loss on sale of OREO  —   9  NM 
    Loan costs  2,020   2,013  — 
    Professional and board fees  2,387   2,365  1 
    FDIC insurance  804   491  64 
    Marketing and advertising  652   429  52 
    Amortization of core deposit intangible  518   531  (2)
    Recovery of servicing rights  (1)  (2,057) (100)
    Total noninterest expense  57,334   55,283  4 
    INCOME BEFORE PROVISION FOR INCOME TAXES  27,424   36,810  (25)
    PROVISION FOR INCOME TAXES  5,397   8,047  (33)
    NET INCOME $22,027  $28,763  (23)
    Basic earnings per share (1) $2.77  $3.43  (19)
    Diluted earnings per share (1) $2.73  $3.31  (18)

    ____________________________
    (1) Prior presentation of earnings per share was revised due to the improper inclusion of certain unvested shares in the denominator of basic and diluted earnings per share. As a result of the inclusion, earnings per share was understated for the three and nine months ended September 30, 2021. Basic earnings per share for those periods was updated to $1.01 and $3.43, respectively, from $0.99 and $3.38 as previously reported. Diluted earnings per share was updated to $0.98 and $3.31, respectively, from $0.97 and $3.30 as previously reported.


            
    KEY FINANCIAL RATIOS AND DATA (Unaudited)       
      At or For the Three Months Ended 
      September 30,  June 30,  September 30,  
      2022 2022 2021 
    PERFORMANCE RATIOS:       
    Return on assets (ratio of net income to average total assets) (1)  1.34%1.14%1.49%
    Return on equity (ratio of net income to average equity) (1) 13.31 10.72 13.82 
    Yield on average interest-earning assets (1) 5.16 4.78 4.67 
    Average total cost of funds (1) 0.68 0.43 0.48 
    Interest rate spread information – average during period 4.48 4.35 4.19 
    Net interest margin (1)  4.54 4.39 4.23 
    Operating expense to average total assets (1) 3.07 3.22 3.58 
    Average interest-earning assets to average interest-bearing liabilities (1) 147.92 152.68 151.92 
    Efficiency ratio (2) 60.99 65.08 64.46 


            
      At or For the Nine Months Ended 
      September 30,    September 30,  
      2022   2021 
    PERFORMANCE RATIOS:       
    Return on assets (ratio of net income to average total assets) (1) 1.24%  1.77%
    Return on equity (ratio of net income to average equity) (1) 11.71   16.33 
    Yield on average interest-earning assets (1) 4.86   4.59 
    Average total cost of funds (1) 0.50   0.53 
    Interest rate spread information – average during period 4.36   4.06 
    Net interest margin (1) 4.39   4.11 
    Operating expense to average total assets (1) 3.23   3.40 
    Average interest-earning assets to average interest-bearing liabilities (1) 151.52   143.81 
    Efficiency ratio (2) 64.14   59.07 


            
      September 30,  June 30,  September 30,  
      2022 2022 2021 
    ASSET QUALITY RATIOS AND DATA:       
    Nonperforming assets to total assets at end of period (3) 0.32%0.28%0.27%
    Nonperforming loans to total gross loans (4) 0.39 0.34 0.35 
    Allowance for credit losses - loans to nonperforming loans (4) 315.35 374.82 453.59 
    Allowance for credit losses - loans to gross loans receivable, excluding HFS loans 1.25 1.27 1.58 
            


               
      At or For the Three Months Ended 
       September 30,  June 30,  September 30,  
      2022 2022 2021 
    PER COMMON SHARE DATA:          
    Basic earnings per share $1.09 $0.84 $1.01 
    Diluted earnings per share $1.08 $0.83 $0.98 
    Weighted average basic shares outstanding  7,605,360  7,776,939  8,129,524 
    Weighted average diluted shares outstanding  7,707,762  7,896,210  8,370,074 
    Common shares outstanding at end of period  7,585,843(5) 7,605,740(6) 8,073,412(7)
    Book value per share using common shares outstanding $29.07 $29.27 $29.78 
    Tangible book value per share using common shares outstanding (8) $28.30 $28.48 $28.97 

    ______________________________
    (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 7,704,373 at September 30, 2022, less 118,530 unvested restricted stock shares.
    (6) Common shares were calculated using shares outstanding of 7,726,232 at June 30, 2022, less 120,492 unvested restricted stock shares.
    (7) Common shares were calculated using shares outstanding of 8,208,045 at September 30, 2021, less 121,672 unvested restricted stock shares, and 12,961 unallocated ESOP shares.
    (8) Tangible book value per share using outstanding common shares excludes intangible assets. This ratio represents a non-GAAP financial measure. See also, “Non-GAAP Financial Measures” 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 2022 2021 2022 2021 $ Change $ Change
    Assets                  
    Loans receivable (1) $2,083,561 $1,776,424 $1,953,305 $1,745,616 $307,137  $207,689 
    Securities available-for-sale, at fair value  277,006  248,179  279,395  216,122  28,827   63,273 
    Securities held-to-maturity  8,500  7,500  7,943  7,500  1,000   443 
    Interest-bearing deposits and certificates of deposit at other financial institutions  29,080  87,440  34,705  108,536  (58,360)  (73,831)
    FHLB stock, at cost  7,924  4,973  5,716  5,783  2,951   (67)
    Total interest-earning assets  2,406,071  2,124,516  2,281,064  2,083,557  281,555   197,507 
    Noninterest-earning assets  93,911  93,137  95,302  90,352  774   4,950 
    Total assets $2,499,982 $2,217,653 $2,376,366 $2,173,909 $282,329  $202,457 
    Liabilities and stockholders’ equity                  
    Interest-bearing accounts $1,458,047 $1,306,546 $1,391,181 $1,335,012 $151,501  $56,169 
    Borrowings  119,150  42,528  64,855  71,452  76,622   (6,597)
    Subordinated notes  49,434  49,367  49,417  42,399  67   7,018 
    Total interest-bearing liabilities  1,626,631  1,398,441  1,505,453  1,448,863  228,190   56,590 
    Noninterest-bearing accounts  588,492  550,884  588,172  461,399  37,608   126,773 
    Other noninterest-bearing liabilities  32,654  29,224  31,342  28,093  3,430   3,249 
    Stockholders’ equity  252,205  239,104  251,399  235,554  13,101   15,845 
    Total liabilities and stockholders’ equity $2,499,982 $2,217,653 $2,376,366 $2,173,909 $282,329  $202,457 

    (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 contains tangible book value per share, a non-GAAP financial measure. Tangible common stockholders’ equity is calculated by excluding intangible assets from stockholders’ equity. For this financial measure, the Company’s intangible assets are goodwill and core deposit intangible. Tangible book value per share is calculated by dividing tangible common shareholders’ equity by the number of common shares outstanding. The Company believes that this non-GAAP measure is consistent with the capital treatment utilized by the investment community, which excludes intangible assets from the calculation of risk-based capital ratios and presents this measure to facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors.

    This non-GAAP financial measure has inherent limitations, is not required to be uniformly applied, and is not audited. Further, this non-GAAP financial measure should not be considered in isolation or as a substitute for book value per share or total stockholders' equity determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.

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

              
      September 30,  June 30,  September 30, 
    (Dollars in thousands, except share and per share amounts) 2022
    		 2022
    		 2021
    Stockholders' equity $220,547  $222,641  $240,453 
    Goodwill and core deposit intangible, net  (5,854)  (6,027)  (6,532)
    Tangible common stockholders' equity $214,693  $216,614  $233,921 
              
    Common shares outstanding at end of period  7,585,843   7,605,740   8,073,412 
              
    Common stockholders' equity (book value) per share (GAAP) $29.07  $29.27  $29.78 
    Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $28.30  $28.48  $28.97 


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

     


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