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
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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

Friday, July 23, 2021 8:15 PM
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Topic:
Earnings
1st Security Bank of Washington

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

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