FS Bancorp, Inc. Reports Net Income for the Second Quarter of 2021 of $8.5 Million or $0.97 Per Diluted Share, and Implemented Previously Announced Two-For-One Stock Split and Scheduled Payment of the Thirty-Fourth Quarterly Dividend

MOUNTLAKE TERRACE, WA / ACCESSWIRE / July 23, 2021 / FS Bancorp, Inc. (NASDAQ:FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2021 second quarter net income of $8.5 million, or $0.97 per diluted share, compared to $10.0 million, or $1.15 per diluted share for the same period last year. All share data throughout this earnings release has been adjusted to reflect the two-for-one stock split announced June 25, 2021, and issued July 14, 2021 to shareholders of record on July 6, 2021.

“The second quarter reflects diversified lending growth funded by our focus on operational, relationship-based deposits,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our thirty-fourth consecutive quarterly cash dividend which was increased to $0.28 from $0.27 per share as previously announced in our press release issued on June 25, 2021. The two-for-one stock split adjusted dividend of $0.14 will be paid on August 6, 2021, to shareholders of record as of July 23, 2021.”

CFO Matthew Mullet noted, “The implemented two-for-one stock split allows for more retail investors to purchase shares at a lower price while the improved cash dividends and our continued stock repurchases reflect our long-term commitment to maximize shareholder returns and the liquidity of our shares of common stock.”

Updated response to the novel coronavirus of 2019 (“COVID-19”) pandemic:

The Company is following the Federal Housing Finance Agency guidelines for forbearance, foreclosure relief, and late payment reporting for the COVID-19 pandemic on all serviced loans and a modified format for portfolio loans. For portfolio loans, the primary method of relief is to allow the borrower up to 90-days of interest only payments and/or loan payment deferments, and, on a more limited basis, waived interest, late fees, or interest only loan payments and suspended foreclosure proceedings. As of June 30, 2021, the amount of portfolio loans under payment/relief agreements included commercial real estate loans of $24.4 million, commercial business loans of $9.3 million, and consumer loans of $147,000. Of these loans, $33.4 million, or 98.9% are making interest only payments. Additional detail is provided below in the “Credit Quality” discussion.

During the second quarter of 2021, we continued our participation in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) which ended on May 31, 2021. Cumulative to date as of June 30, 2021, PPP loan balances totaling $53.7 million were submitted for approval and forgiven by the SBA. As of June 30, 2021, there was a total of 412 PPP loans outstanding totaling $73.2 million.

2021 Second Quarter Highlights

  • Net income was $8.5 million for the second quarter of 2021, compared to $11.9 million in the previous quarter, and $10.0 million for the comparable quarter one year ago;
  • Net interest income increased to $21.2 million from $20.1 million in the previous quarter, and improved from $17.9 million in the comparable quarter one year ago;
  • Total net loans increased $52.6 million, or 3.3%, to $1.65 billion at June 30, 2021, compared to $1.59 billion at March 31, 2021, and increased $201.2 million, or 13.9% from $1.44 billion at June 30, 2020;
  • Originated $396.9 million of one-to-four-family loans including a 76.8% increase in purchase production from the comparable quarter in 2020 and sold $378.0 million of these loans at a gross margin of 3.82%;
  • Deposits increased $77.8 million during the quarter to $1.86 billion, compared to $1.78 billion in the previous quarter, including an increase of $24.1 million in relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts related to mortgages serviced) in line with management’s focus on increasing relationship demand deposits;
  • Repurchased 200,588 shares during the second quarter for $7.0 million. As of July 22, 2021, the Company has $5.8 million remaining of the $15.0 million share repurchase plan approved in the first quarter of 2021;
  • On June 25, 2021, the Company announced a two-for-one stock split in the form of a 100% stock dividend consisting of one additional common share for each outstanding common share. The stock dividend was distributed on July 14, 2021, to shareholders of record as of July 6, 2021;
  • On June 25, 2021, the Company announced a pre-stock-split increase in the dividend of $0.01 per share to $0.28 per share, an increase from $0.27 per share. Post stock split, the dividend is now $0.14 per share; and
  • The Community Bank Leverage Ratio (“CBLR”) was 11.9% and 10.8% for the Bank and the Company, respectively, at June 30, 2021.

Asset Summary

Total assets increased $47.0 million, or 2.2%, to $2.22 billion at June 30, 2021, compared to $2.18 billion at March 31, 2021, and increased $213.9 million, or 10.6%, from $2.01 billion at June 30, 2020. The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $52.6 million, securities available-for-sale of $31.3 million, total cash and cash equivalents of $1.1 million, premises and equipment, net of $796,000, and servicing rights of $621,000, partially offset by decreases in loans held for sale (“HFS”) of $34.9 million, other assets of $2.7 million, and Federal Home Loan Bank (“FHLB”) stock of $1.4 million. The year over year increase was primarily due to increases in loans receivable, net of $201.2 million, securities available-for-sale of $63.9 million, securities held-to-maturity of $7.5 million, servicing rights of $5.7 million, accrued interest receivable of $1.0 million, and other assets of $873,000, partially offset by decreases in total cash and cash equivalents of $39.6 million, loans HFS of $18.0 million, certificates of deposit (“CDs”) at other financial institutions of $6.1 million, and FHLB stock of $2.6 million.

LOAN PORTFOLIO
                                   
(Dollars in thousands)
  June 30, 2021     March 31, 2021     June 30, 2020  
 
  Amount     Percent     Amount     Percent     Amount     Percent  
REAL ESTATE LOANS
                                   
Commercial
  231,196       13.8 %   226,799       14.0 %   222,265       15.1 %
Construction and development
    242,715       14.4       241,677       14.9       183,029       12.5  
Home equity
    40,718       2.4       41,352       2.5       35,082       2.4  
One-to-four-family (excludes HFS)
    335,397       20.0       299,316       18.4       295,220       20.1  
Multi-family
    133,828       8.0       122,623       7.5       132,329       9.0  
Total real estate loans
    983,854       58.6       931,767       57.3       867,925       59.1  
 
                                               
CONSUMER LOANS
                                               
Indirect home improvement
    308,447       18.4       294,455       18.1       264,781       18.0  
Marine
    86,216       5.1       85,275       5.3       76,893       5.2  
Other consumer
    3,177       0.2       3,119       0.2       3,647       0.3  
Total consumer loans
    397,840       23.7       382,849       23.6       345,321       23.5  
 
                                               
COMMERCIAL BUSINESS LOANS
                                               
Commercial and industrial
    242,287       14.5       261,932       16.1       213,961       14.6  
Warehouse lending
    54,072       3.2       48,537       3.0       41,701       2.8  
Total commercial business loans
    296,359       17.7       310,469       19.1       255,662       17.4  
Total loans receivable, gross
    1,678,053       100.0 %     1,625,085       100.0 %     1,468,908       100.0 %
 
                                               
Allowance for loan losses
    (27,234 )             (27,375 )             (21,524 )        
Deferred costs and fees, net
    (5,514 )             (5,278 )             (4,231 )        
Premiums on purchased loans, net
    359               628               1,272          
Total loans receivable, net
  1,645,664             1,593,060             1,444,425          

Loans receivable, net increased $52.6 million to $1.65 billion at June 30, 2021, from $1.59 billion at March 31, 2021, and increased $201.2 million from $1.44 billion at June 30, 2020. The quarter over linked quarter increase in total real estate loans was $52.1 million, including increases in one-to-four-family loans of $36.1 million, multi-family loans of $11.2 million, commercial real estate loans of $4.4 million and construction and development loans of $1.0 million, offset by a decrease in home equity loans of $634,000. Consumer loans increased $15.0 million, primarily due to an increase of $14.0 million in indirect home improvement loans. Commercial business loans decreased $14.1 million, primarily due to a decrease in commercial and industrial loans of $19.6 million, partially due to a net decrease in PPP loans of $10.6 million.

Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended June 30, 2021 and March 31, 2021, and for the three and six months ended June 30, 2021, and 2020 were as follows:

(Dollars in thousands)
  For the Three Months Ended     For the Three Months Ended     Quarter     Quarter  
 
  June 30, 2021     March 31, 2021     over Quarter     over Quarter  
 
  Amount     Percent     Amount     Percent     $ Change     % Change  
Purchase
  252,999       63.7 %   185,461       42.7 %   67,538       36.4  
Refinance
    143,911       36.3       248,992       57.3       (105,081 )     (42.2 )
Total
  396,910       100.0 %   434,453       100.0 %   (37,543 )     (8.6 )
 
  For the Three Months Ended     For the Three Months Ended     Year     Year  
 
  June 30, 2021     June 30, 2020     over Year     over Year  
 
  Amount     Percent     Amount     Percent     $ Change     % Change  
Purchase
  252,999       63.7 %   143,060       29.9 %   109,939       76.8  
Refinance
    143,911       36.3       335,333       70.1       (191,422 )     (57.1 )
Total
  396,910       100.0 %   478,393       100.0 %   (81,483 )     (17.0 )
 
  For the Six Months Ended     For the Six Months Ended     Year     Year  
 
  June 30, 2021     June 30, 2020     over Year     over Year  
 
  Amount     Percent     Amount     Percent     $ Change     % Change  
Purchase
  438,460       52.7 %   257,712       33.7 %   180,748       70.1  
Refinance
    392,903       47.3       506,283       66.3       (113,380 )     (22.4 )
Total
  831,363       100.0 %   763,995       100.0 %   67,368       8.8  

During the quarter ended June 30, 2021, the Company sold $378.0 million of one-to-four-family loans compared to sales of $414.0 million during the previous quarter, and sales of $427.0 million during the same quarter one year ago. During the six months ended June 30, 2021, the Company sold $792.0 million of one-to-four-family loans compared to sales of $639.4 million during the same period last year. Growth in purchase activity was driven by a strong housing market in the Pacific Northwest as well as the Company’s focus on purchase originations to support housing demand.

Gross margins on home loan sales decreased to 3.82% for the three months ended June 30, 2021, compared to 4.60% at March 31, 2021 and increased slightly from 3.81% for the three months ended June 30, 2020. 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)
                                   
 
  June 30, 2021     March 31, 2021              
Relationship-based transactional deposits:
  Amount     Percent     Amount     Percent     $ Change     % Change  
Noninterest-bearing checking
  415,748       22.4 %   390,855       22.0 %   24,893       6.4  
Interest-bearing checking
    257,206       13.8       250,907       14.1       6,299       2.5  
Escrow accounts related to mortgages serviced
    16,469       0.9       23,535       1.3       (7,066 )     (30.0 )
Subtotal
    689,423       37.1       665,297       37.4       24,126       3.6  
Savings
    181,505       9.8       161,140       9.1       20,365       12.6  
Money market
    483,935       26.0       468,753       26.3       15,182       3.2  
Subtotal
    665,440       35.8       629,893       35.4       35,547       5.6  
Certificates of deposit less than $100,000
    299,250       16.1       285,505       16.0       13,745       4.8  
Certificates of deposit of $100,000 through $250,000
    138,559       7.5       133,570       7.5       4,989       3.7  
Certificates of deposit of $250,000 and over
    65,938       3.5       66,528       3.7       (590 )     (0.9 )
Subtotal
    503,747       27.1       485,603       27.2       18,144       3.7  
Total
  1,858,610       100.0 %   1,780,793       100.0 %   77,817       4.4  
(Dollars in thousands)
                                   
 
  June 30, 2021     June 30, 2020              
Relationship-based transactional deposits:
  Amount     Percent     Amount     Percent     $ Change     % Change  
Noninterest-bearing checking
  415,748       22.4 %   333,588       20.8 %   82,160       24.6  
Interest-bearing checking
    257,206       13.8       220,214       13.7       36,992       16.8  
Escrow accounts related to mortgages serviced
    16,469       0.9       11,909       0.7       4,560       38.3  
Subtotal
    689,423       37.1       565,711       35.2       123,712       21.9  
Savings
    181,505       9.8       143,740       8.9       37,765       26.3  
Money market
    483,935       26.0       324,253       20.2       159,682       49.2  
Subtotal
    665,440       35.8       467,993       29.1       197,447       42.2  
Certificates of deposit less than $100,000
    299,250       16.1       321,634       20.0       (22,384 )     (7.0 )
Certificates of deposit of $100,000 through $250,000
    138,559       7.5       166,543       10.4       (27,984 )     (16.8 )
Certificates of deposit of $250,000 and over
    65,938       3.5       84,991       5.3       (19,053 )     (22.4 )
Subtotal
    503,747       27.1       573,168       35.7       (69,421 )     (12.1 )
Total
  1,858,610       100.0 %   1,606,872       100.0 %   251,738       15.7  

The increase in deposits between the periods presented was primarily driven by organic growth in customer relationships, proceeds from PPP loans and government stimulus checks deposited directly into customer accounts, and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.

At June 30, 2021, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, increased $23.9 million to $211.9 million, compared to $188.1 million at March 31, 2021, due to increases of $16.7 million in brokered CDs and $7.2 million in online CDs. The year over year increase in non-retail CDs of $16.8 million from $195.1 million at June 30, 2020, was primarily the result of a $6.8 million increase in brokered CDs, a $6.5 million increase in online CDs, and a $3.5 million increase in public funds CDs. Growth in non-retail CDs is directly tied to the Company utilizing the wholesale market to manage interest rate risk and balance the funding of longer-term asset growth through wholesale term certificates.

At June 30, 2021, borrowings decreased $30.0 million, or 41.4%, to $42.5 million, from $72.5 million at March 31, 2021, and decreased $107.7 million, or 71.7% from $150.3 million at June 30, 2020. The decrease in borrowings from the linked quarter was due to the maturity of $30.0 million of FHLB borrowings, replaced in part by the growth in non-retail CDs mentioned above. Management will utilize wholesale deposits when the cost of borrowings is higher than the cost of wholesale certificates. The decrease in borrowings from the prior year is primarily due to the repayment of $63.0 million of Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings, due in part to SBA forgiveness of the underlying PPP loans and the maturity of the FHLB borrowings mentioned above.

Total stockholders’ equity increased $1.4 million, to $241.8 million at June 30, 2021, from $240.3 million at March 31, 2021, and increased $33.1million, from $208.6 million at June 30, 2020. The increase in stockholders’ equity during the current quarter was primarily due to net income of $8.5 million, partially offset by dividends of $1.1 million and common stock repurchases of $7.0 million. On June 25, 2021, the Company announced a two-for-one stock split in the form of a share distribution of one additional common share for each outstanding common share. The stock dividend was distributed on July 14, 2021, to shareholders of record as of July 6, 2021. The Company repurchased 200,588 shares of its common stock during the quarter ended June 30, 2021, at an average price of $34.96 per share. Book value per common share was $29.49 at June 30, 2021, compared to $28.90 at March 31, 2021, and $25.04 at June 30, 2020.

The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation (“FDIC”) at June 30, 2021 with a CBLR of 11.9%, compared to the normally required CBLR of greater than 9.0% and the regulatory approved reduced CBLR of 8.5% due to the COVID-19 pandemic. The Company’s CBLR was 10.8% at June 30, 2021.

Credit Quality

The allowance for loan and lease losses at June 30, 2021, decreased to $27.2 million, or 1.62% of gross loans receivable, excluding loans HFS, compared to $27.4 million, or 1.68% of gross loans receivable, excluding loans HFS at March 31, 2021, and increased from $21.5 million, or 1.47% of gross loans receivable, excluding loans HFS, at June 30, 2020. Nonperforming loans decreased $3.0 million to $6.3 million at June 30, 2021, from $9.3 million at March 31, 2021 and decreased from $7.9 million at June 30, 2020. The decrease in nonperforming loans quarter over linked quarter was primarily related to the payoff of a commercial construction and development loan of $1.9 million and a commercial business loan of $1.2 million. The year over year decrease was primarily due to a commercial real estate loan of $1.1 million reinstated to accruing status.

Loans classified as substandard increased $1.4 million to $22.3 million at June 30, 2021, compared to $20.9 million at March 31, 2021, and increased $9.9 million from $12.4 million at June 30, 2020. The quarter over linked quarter increase in substandard loans was attributable to a $3.2 million increase in commercial and industrial loans, partially offset by the payoff of the $1.9 million construction and development loan. The year over year increase in substandard loans was primarily due to an increase of $6.2 million in commercial and industrial loans and one-to-four-family loan increases of $5.9 million, partially offset by a decrease of $2.1 million in commercial real estate loans. There was no other real estate owned (“OREO”) property at June 30, 2021 or March 31, 2021, compared to one OREO property in the amount of $90,000 at June 30, 2020.

Included in the carrying value of gross loans are net discounts on loans purchased in the Anchor Bank acquisition in November 2018 (“Anchor Acquisition”). The remaining net discount on loans acquired was $1.0 million, $1.3 million, and $2.0 million, on $100.2 million, $121.9 million, and $168.7 million of gross loans at June 30, 2021, March 31, 2021, and June 30, 2020, respectively.

Management has identified loans that have either been directly or indirectly impacted by the COVID-19 pandemic and downgraded the risk classification and/or increased the monitoring of these loans. Commercial loans (non homogeneous loans) originally reported at a risk rating below “pass” or receiving elevated risk monitoring as a result of the COVID-19 pandemic and their respective industries at the dates indicated are as follows:

(Dollars in thousands)
                 
Loan types:
  June 30, 2021     March 31, 2021     June 30, 2020  
Construction and development
  2,836     2,915     4,704  
Education/worship
    227       243       5,558  
Food and beverage
    12,788       13,107       16,199  
Hospitality
    38,547       41,819       44,136  
Manufacturing
    606       3,184       19,777  
Retail
    1,878       1,932       11,865  
Transportation
    4,487       4,487       4,532  
Other
    13,599       13,778       20,040  
Total
  74,968     81,465     126,811  

Management recognizes the potential impact of COVID-19 on all of our customers and will continue to prudently reserve for probable loan losses, including reserves against our homogenous residential and consumer portfolios.

Operating Results

Net interest income increased $3.4 million, to $21.2 million for the three months ended June 30, 2021, from $17.9 million for the three months ended June 30, 2020. 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 funded by lower cost deposits. Interest income increased $2.1 million, primarily due to an increase of $1.9 in interest income on loans receivable, including fees, impacted primarily by loan growth with low market interest rates on new loan originations, including low yielding PPP loans, resetting adjustable-rate instruments, refinances of higher yielding one-to-four-family portfolio loans, and SBA forgiveness of PPP loans. Interest expense decreased $1.3 million, primarily as a result of repricing deposit rates. For the three months ended June 30, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $436,000. For the six months ended June 30, 2021, net interest income increased by $6.0 million, to $41.3 million, from $35.3 million for the six months ended June 30, 2020 in a similar manner as for the three-month comparison described above, with decreases in interest expense of $3.1 million, and an increase in interest income of $2.9 million. For the six months ended June 30, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $1.1 million.

The net interest margin (“NIM”) increased 18 basis points to 4.09% for the three months ended June 30, 2021, from 3.91% for the same period in the prior year, and decreased five basis points to 4.04% for the six months ended June 30, 2021, from 4.09% for the six months ended June 30, 2020. The comparable quarter over quarter increase in NIM was impacted by higher yielding loans, including higher interest rates on new fixed-rate real estate loan originations and adjustable-rate commercial loans. During the quarter ended June 30, 2021, $128,000 in premium was amortized on purchased loans with early payoffs, partially offset by $271,000 in discount accretion from the Anchor Acquisition. The slight decrease in NIM between the six months ended June 30, 2021 and 2020 reflects the change in our asset mix, including increased investment securities, commercial business loans, and one-to-four-family loans that carry lower yields than other interest-earning products.

The average total cost of funds, including noninterest-bearing checking, decreased 37 basis points to 0.54% for the three months ended June 30, 2021, from 0.91% for the three months ended June 30, 2020. This decrease was predominantly due to the decline in cost for market rate deposits and borrowings as well as a managed runoff of higher cost CD funding. The average cost of funds decreased 48 basis points to 0.56% for the six months ended June 30, 2021, from 1.04% for the six months ended June 30, 2020, also reflecting decreases 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 six months ended June 30, 2021, the provision for loan losses was $0.0 and $1.5 million, respectively, compared to $4.6 million and $8.3 million for the three and six months ended June 30, 2020, respectively. The reduction of the provision for loan losses reflects improvements in watch classified loans that were downgraded based on the COVID-19 pandemic and have shown loan-level improvements at June 30, 2021, compared to the same time last year. During the three months ended June 30, 2021, net charge-offs totaled $141,000 compared to net recoveries of $3,000 for the same period last year. The increase in net charge-offs was primarily due to increased consumer loan charge-offs, including overdraft charge-offs. Net charge-offs totaled $439,000 during the six months ended June 30, 2021, compared to net charge-offs of $40,000 during the six months ended June 30, 2020, due to the same reason mentioned above.

Noninterest income decreased $5.9 million, to $8.2 million, for the three months ended June 30, 2021, from $14.1 million for the three months ended June 30, 2020. The decrease during the period primarily reflects a $7.0 million decrease in gain on sale of loans due primarily to a reduction in the amount of loans sold, partially offset by a $1.1 million increase in service charges and fee income due to the Company’s prior period COVID-19 related relief temporarily waiving on a case-by-case basis, customer-related service charges and fees. During the current quarter, a pool of United States Department of Agriculture (“USDA”) loans with a principal balance of $2.4 million were sold with a gain on sale of $106,000, net of unamortized premium. Noninterest income decreased $1.8 million, to $21.2 million, for the six months ended June 30, 2021, from $23.0 million for the six months ended June 30, 2020. This decrease was the result of a $1.4 million decrease in other noninterest income due to the one- time sale of Class B Visa stock shares of $1.5 million during the same period last year and a $1.2 million decrease in gain on sale of loans, partially offset by a $933,000 increase in service charges and fee income.

Noninterest expense increased $4.3 million, to $18.9 million for the three months ended June 30, 2021, from $14.6 million for the three months ended June 30, 2020. The increase in noninterest expense reflects a $4.5 million increase in salaries and benefits, primarily attributable to additional staffing costs to support growth of $1.3 million and a decrease in recognized deferred costs on direct loan origination activities of $3.4 million. Other increases included loan costs of $196,000, data processing of $152,000, operation expenses of $136,000, and professional and board fees of $118,000, partially offset by a reduction in the impairment of servicing rights of $799,000. Noninterest expense increased $4.5 million, to $35.3 million for the six months ended June 30, 2021, from $30.8 million for the six months ended June 30, 2020. The increase during this period was primarily due to increases of $6.6 million in salaries and benefits, mostly attributable to increases in compensation and benefits of $5.0 million, including incentives and commissions of $1.3 million, partially offset by a decrease in recognized deferred costs on direct loan origination activities of $1.5 million. Other increases included $479,000 in data processing, $259,000 in professional and board fees, $220,000 in loan costs, and $156,000 in operation expenses, partially offset by the $3.4 million net change on servicing rights which reflect a recovery of servicing rights of $2.0 million in 2021. In the comparable period for 2020, we recognized an impairment of $1.3 million on our servicing rights asset due to falling interest rates as a result of the COVID-19 pandemic.

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 ten loan production offices in various suburban communities in the greater Puget Sound area, and one loan production office in the market area of the Tri-Cities, Washington. The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities 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: the effect of the COVID-19 pandemic, including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within 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; 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 2021 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  
 
  June 30,     March 31,     June 30,     Quarter     Over Year  
 
  2021     2021     2020     % Change     % Change  
ASSETS
                             
Cash and due from banks
  12,957     10,982     12,214       18       6  
Interest-bearing deposits at other financial institutions
    73,597       74,464       113,910       (1 )     (35 )
Total cash and cash equivalents
    86,554       85,446       126,124       1       (31 )
Certificates of deposit at other financial institutions
    11,782       12,278       17,926       (4 )     (34 )
Securities available-for-sale, at fair value
    232,570       201,311       168,709       16       38  
Securities held-to-maturity
    7,500       7,500                

NM

 
Loans held for sale, at fair value
    121,395       156,281       139,410       (22 )     (13 )
Loans receivable, net
    1,645,664       1,593,060       1,444,425       3       14  
Accrued interest receivable
    7,323       7,429       6,303       (1 )     16  
Premises and equipment, net
    27,594       26,798       28,340       3       (3 )
Operating lease right-of-use
    5,193       5,085       4,730       2       10  
Federal Home Loan Bank (“FHLB”) stock, at cost
    5,065       6,475       7,659       (22 )     (34 )
Other real estate owned (“OREO”)
                90          

NM

 
Deferred tax asset, net
    216       164             32    

NM

 
Bank owned life insurance (“BOLI”), net
    36,655       36,440       35,788       1       2  
Servicing rights, held at the lower of cost or fair value
    16,356       15,735       10,672       4       53  
Goodwill
    2,312       2,312       2,312              
Core deposit intangible, net
    4,397       4,574       5,104       (4 )     (14 )
Other assets
    12,037       14,698       11,164       (18 )     8  
TOTAL ASSETS
  2,222,613     2,175,586     2,008,756       2       11  
LIABILITIES
                                       
Deposits:
                                       
Noninterest-bearing accounts
  432,217     414,390     345,497       4       25  
Interest-bearing accounts
    1,426,393       1,366,403       1,261,375       4       13  
Total deposits
    1,858,610       1,780,793       1,606,872       4       16  
Borrowings
    42,528       72,528       150,255       (41 )     (72 )
Subordinated notes:
                                       
Principal amount
    50,000       50,000       10,000             400  
Unamortized debt issuance costs
    (639 )     (656 )     (105 )     (3 )     509  
Total subordinated notes less unamortized debt issuance costs
    49,361       49,344       9,895             399  
Operating lease liability
    5,401       5,285       4,945       2       9  
Deferred tax liability, net
                2,675          

NM

 
Other liabilities
    24,953       27,325       25,473       (9 )     (2 )
Total liabilities
    1,980,853       1,935,275       1,800,115       2       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; 8,333,566 shares issued and outstanding at June 30, 2021, 8,466,080 at March 31, 2021, and 8,490,082 at June 30, 2020
    83       85       85       (2 )     (2 )
Additional paid-in capital
    75,797       81,537       81,573       (7 )     (7 )
Retained earnings
    164,606       157,193       124,090       5       33  
Accumulated other comprehensive income, net of tax
    1,434       1,721       3,334       (17 )     (57 )
Unearned shares – Employee Stock Ownership Plan (“ESOP”)
    (160 )     (225 )     (441 )     (29 )     (64 )
Total stockholders’ equity
    241,760       240,311       208,641       1       16  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  2,222,613     2,175,586     2,008,756       2       11  

Share data has been adjusted to reflect a two-for-one stock split effective July 14, 2021.

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts) (Unaudited)

 
  Three Months Ended     Qtr     Year  
 
  June 30,     March 31,     June 30,     Over Qtr     Over Year  
 
  2021     2021     2020     % Change     % Change  
INTEREST INCOME
                             
Loans receivable, including fees
  22,484     21,534     20,564       4       9  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions
    1,313       1,250       1,149       5       14  
Total interest and dividend income
    23,797       22,784       21,713       4       10  
INTEREST EXPENSE
                                       
Deposits
    1,870       1,982       3,226       (6 )     (42 )
Borrowings
    222       446       458       (50 )     (52 )
Subordinated notes
    485       256       169       89       187  
Total interest expense
    2,577       2,684       3,853       (4 )     (33 )
NET INTEREST INCOME
    21,220       20,100       17,860       6       19  
PROVISION FOR LOAN LOSSES
          1,500       4,649    

NM

   

NM

 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    21,220       18,600       13,211       14       61  
NONINTEREST INCOME
                                       
Service charges and fee income
    1,188       765       96       55       1138  
Gain on sale of loans
    6,392       11,685       13,365       (45 )     (52 )
Gain on sale of investment securities
                182          

NM

 
Earnings on cash surrender value of BOLI
    215       214       215              
Other noninterest income
    391       370       273       6       43  
Total noninterest income
    8,186       13,034       14,131       (37 )     (42 )
NONINTEREST EXPENSE
                                       
Salaries and benefits
    11,932       11,609       7,420       3       61  
Operations
    2,709       2,467       2,573       10       5  
Occupancy
    1,226       1,139       1,216       8       1  
Data processing
    1,203       1,307       1,051       (8 )     14  
Loss on sale of OREO
          9          

NM

       
OREO expenses
                2          

NM

 
Loan costs
    647       524       451       23       43  
Professional and board fees
    786       822       668       (4 )     18  
Federal Deposit Insurance Corporation (“FDIC”) insurance
    123       248       158       (50 )     (22 )
Marketing and advertising
    155       97       103       60       50  
Amortization of core deposit intangible
    177       177       177              
Impairment (recovery) of servicing rights
    4       (2,050 )     803       100       (100 )
Total noninterest expense
    18,962       16,349       14,622       16       30  
INCOME BEFORE PROVISION FOR INCOME TAXES
    10,444       15,285       12,720       (32 )     (18 )
PROVISION FOR INCOME TAXES
    1,895       3,402       2,700       (44 )     (30 )
NET INCOME
  8,549     11,883     10,020       (28 )     (15 )
Basic earnings per share
  1.00     1.39     1.17       (28 )     (15 )
Diluted earnings per share
  0.97     1.35     1.15       (28 )     (16 )

Share data has been adjusted to reflect a two-for-one stock split effective July 14, 2021.

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts) (Unaudited)

 
  Six Months Ended     Year  
 
  June 30,     June 30,     Over Year  
 
  2021     2020     % Change  
INTEREST INCOME
                 
Loans receivable, including fees
  44,018     41,304       7  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions
    2,563       2,358       9  
Total interest and dividend income
    46,581       43,662       7  
INTEREST EXPENSE
                       
Deposits
    3,852       7,033       (45 )
Borrowings
    668       955       (30 )
Subordinated note
    741       341       117  
Total interest expense
    5,261       8,329       (37 )
NET INTEREST INCOME
    41,320       35,333       17  
PROVISION FOR LOAN LOSSES
    1,500       8,335       (82 )
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    39,820       26,998       47  
NONINTEREST INCOME
                       
Service charges and fee income
    1,953       1,020       91  
Gain on sale of loans
    18,077       19,264       (6 )
Gain on sale of investment securities
          182    

NM

 
Earnings on cash surrender value of BOLI
    429       431        
Other noninterest income
    761       2,125       (64 )
Total noninterest income
    21,220       23,022       (8 )
NONINTEREST EXPENSE
                       
Salaries and benefits
    23,541       16,967       39  
Operations
    5,132       4,976       3  
Occupancy
    2,365       2,325       2  
Data processing
    2,510       2,031       24  
Loss on sale of OREO
    9       2       350  
OREO expenses
          2    

NM

 
Loan costs
    1,171       951       23  
Professional and board fees
    1,608       1,349       19  
FDIC insurance
    371       284       31  
Marketing and advertising
    252       249       1  
Amortization of core deposit intangible
    354       353        
(Recovery) impairment of servicing rights
    (2,046 )     1,317       (255 )
Total noninterest expense
    35,267       30,806       14  
INCOME BEFORE PROVISION FOR INCOME TAXES
    25,773       19,214       34  
PROVISION FOR INCOME TAXES
    5,341       4,027       33  
NET INCOME
  20,432     15,187       35  
Basic earnings per share
  2.36     1.74       34  
Diluted earnings per share
  2.29     1.71       33  

Share data has been adjusted to reflect a two-for-one stock split effective July 14, 2021.

KEY FINANCIAL RATIOS AND DATA (Unaudited)
                 
 
                 
 
  At or For the Three Months Ended  
 
  June 30,     March 31,     June 30,  
 
  2021     2021     2020  
PERFORMANCE RATIOS:
                 
Return on assets (ratio of net income to average total assets) (1)
    1.58 %     2.26 %     2.08 %
Return on equity (ratio of net income to average equity) (1)
    14.41       21.01       19.77  
Yield on average interest-earning assets (1)
    4.58       4.52       4.75  
Average total cost of funds (1)
    0.54       0.58       0.91  
Interest rate spread information – average during period
    4.04       3.94       3.84  
Net interest margin (1)
    4.09       3.99       3.91  
Operating expense to average total assets (1)
    3.49       3.11       3.03  
Average interest-earning assets to average interest-bearing liabilities
    139.00       137.59       132.98  
Efficiency ratio (2)
    64.33       49.34       45.71  
 
  At or For the Six Months Ended  
 
  June 30,     June 30,  
 
  2021     2020  
PERFORMANCE RATIOS:
           
Return on assets (ratio of net income to average total assets) (1)
    1.91 %     1.66 %
Return on equity (ratio of net income to average equity) (1)
    17.63       15.01  
Yield on average interest-earning assets (1)
    4.55       5.06  
Average total cost of funds (1)
    0.56       1.04  
Interest rate spread information – average during period (1)
    3.99       4.02  
Net interest margin (1)
    4.04       4.09  
Operating expense to average total assets (1)
    3.31       3.37  
Average interest-earning assets to average interest-bearing liabilities
    138.30       132.75  
Efficiency ratio (2)
    56.39       52.79  
 
  June 30,     March 31,     June 30,  
 
  2021     2021     2020  
ASSET QUALITY RATIOS AND DATA:
                 
Non-performing assets to total assets at end of period (3)
    0.28 %     0.43 %     0.40 %
Non-performing loans to total gross loans (4)
    0.38       0.57       0.54  
Allowance for loan losses to non-performing loans (4)
    432.01       295.12       272.40  
Allowance for loan losses to gross loans receivable, excluding HFS loans
    1.62       1.68       1.47  
 
                       
CAPITAL RATIOS, BANK ONLY:
                       
Community Bank Leverage Ratio
    11.87 %     11.82 %     10.85 %
 
                       
CAPITAL RATIOS, COMPANY ONLY:
                       
Tier 1 leverage-based capital
    10.79 %     10.91 %     10.54 %
 
  At or For the Three Months Ended  
 
  June 30,     March 31,     June 30,  
(Post stock split adjusted)
  2021     2021     2020  
PER COMMON SHARE DATA:
                 
Basic earnings per share
  1.00     1.39     1.17  
Diluted earnings per share
  0.97     1.35     1.15  
Weighted average basic shares outstanding
    8,393,164       8,430,752       8,465,553  
Weighted average diluted shares outstanding
    8,660,613       8,678,168       8,610,499  
Common shares outstanding at end of period
    8,197,461 (5)       8,317,014 (6)       8,331,889 (7)  
Book value per share using common shares outstanding
  29.49     28.90     25.04  
Tangible book value per share using common shares outstanding (8)
  28.67     28.07     24.15  

Share data has been adjusted to reflect a two-for-one stock split effective July 14, 2021.

____________________________

  1. Annualized.
  2. Total noninterest expense as a percentage of net interest income and total noninterest income.
  3. Non-performing assets consist of non-performing loans (which include non-accruing loans and accruing loans more than 90 days past due), foreclosed real estate and other repossessed assets.
  4. Non-performing loans consist of non-accruing loans and accruing loans 90 days or more past due.
  5. Common shares were calculated using shares outstanding of 8,333,566 at June 30, 2021, less 110,184 unvested restricted stock shares, and 25,921unallocated ESOP shares.
  6. Common shares were calculated using shares outstanding of 8,466,080 at March 31, 2021, less 110,184 unvested restricted stock shares, and 38,882 unallocated ESOP shares.
  7. Common shares were calculated using shares outstanding of 8,490,082 at June 30, 2020, less 80,430 unvested restricted stock shares, and 77,763 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 June 30,     For the Six Months Ended June 30,     QTR Over QTR     Year Over Year  
Average Balances
  2021     2020     2021     2020     $ Change     $ Change  
Assets
                                   
Loans receivable, net of deferred loan fees (1)
  1,742,720     1,542,581     1,729,956     1,481,404     200,139     248,552  
Securities available-for-sale, at fair value
    215,759       152,021       199,827       144,140       63,738       55,687  
Securities held-to-maturity
    7,500             7,500             7,500       7,500  
Interest-bearing deposits and certificates of deposit at other financial institutions
    111,225       135,308       119,259       102,535       (24,083 )     16,724  
FHLB stock, at cost
    5,155       9,252       6,196       8,756       (4,097 )     (2,560 )
Total interest-earning assets
    2,082,359       1,839,162       2,062,738       1,736,835       243,197       325,903  
Noninterest-earning assets
    90,159       98,624       88,936       99,075       (8,465 )     (10,139 )
Total assets
  2,172,518     1,937,786     2,151,674     1,835,910     234,732     315,764  
Liabilities and stockholders’ equity
                                               
Interest-bearing accounts
  1,406,138     1,201,727     1,366,454     1,166,423     204,411     200,031  
Borrowings
    42,616       171,445       86,153       132,028       (128,829 )     (45,875 )
Subordinated notes
    49,351       9,892       38,858       9,889       39,459       28,969  
Total interest-bearing liabilities
    1,498,105       1,383,064       1,491,465       1,308,340       115,041       183,125  
Noninterest-bearing accounts
    409,845       325,865       398,942       299,654       83,980       99,288  
Other noninterest-bearing liabilities
    26,527       24,975       27,517       24,390       1,552       3,127  
Stockholders’ equity
    238,041       203,882       233,750       203,526       34,159       30,224  
Total liabilities and stockholders’ equity
  2,172,518     1,937,786     2,151,674     1,835,910     234,732     315,764  

(1) Includes loans held for sale.

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 the 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.

 
  June 30,     March 31,     June 30,  
(Dollars in thousands, except share and per share amounts)
  2021     2021     2020  
Stockholders’ equity
  241,760     240,311     208,641  
Goodwill and core deposit intangible, net
    (6,709 )     (6,886 )     (7,416 )
Tangible common stockholders’ equity
  235,051     233,425     201,225  
 
                       
Common shares outstanding at end of period
    8,197,461       8,317,014       8,331,889  
 
                       
Common stockholders’ equity (book value) per share (GAAP)
  29.49     28.90     25.04  
Tangible common stockholders’ equity (tangible book value) per share (non-GAAP)
  28.67     28.07     24.15  

CONTACT: 
Joseph C. Adams,
Chief Executive Officer
Matthew D. Mullet,
Chief Financial Officer
(425) 771-5299
www.FSBWA.com 
SOURCE: 1st Security Bank of Washington

View source version on accesswire.com:
https://www.accesswire.com/656884/FS-Bancorp-Inc-Reports-Net-Income-for-the-Second-Quarter-of-2021-of-85-Million-or-097-Per-Diluted-Share-and-Implemented-Previously-Announced-Two-For-One-Stock-Split-and-Scheduled-Payment-of-the-Thirty-Fourth-Quarterly-Dividend

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