FS Bancorp, Inc. Reports Net Income for the First Quarter
FS Bancorp, Inc. Reports Net Income for the First Quarter

MOUNTLAKE TERRACE, Wash., April 28, 2022 (GLOBE NEWSWIRE) — FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2022 first quarter net income of $6.9 million, or $0.81 per diluted share, compared to $11.9 million, or $1.35 per diluted share for the same quarter last year. All share and per share data in this earnings release has been adjusted to reflect the two-for-one stock split, in the form of a 100% stock dividend, effective July 14, 2021.

“In line with investor feedback, we reaffirmed the Company’s commitment to returning value to our shareholders by successfully repurchasing 115,356 shares during the quarter at an average price of 106% of book value. We also early adopted the Current Expected Credit Loss standard as of January 1, 2022, with minimal impact to the Company, to further reduce investor uncertainty surrounding the pending accounting change,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our thirty-seventh consecutive quarterly cash dividend. The quarterly dividend of $0.20 and the special dividend of $0.10 as previously announced on April 6, 2022, will be paid on May 26, 2022, to shareholders of record as of May 12, 2022.”

2022 First Quarter Highlights

  • Early adoption of the Current Expected Credit Losses (“CECL”) standard as of January 1, 2022, which resulted in a decrease of $2.9 million to our allowance for credit losses on loans (“ACLL”), an increase of $2.4 million to our allowance for credit losses on unfunded commitments and letters of credit, an increase of $72,000 to our allowance for held-to-maturity securities, and a net-of-tax cumulative-effect adjustment of $297,000 to increase the beginning balance of retained earnings;
  • Repurchased 115,356 shares of our common stock during the first quarter and the Board of Directors approved an additional $10.0 million in repurchases as previously announced on April, 6, 2022;
  • Net income was $6.9 million for the first quarter of 2022, compared to $8.6 million in the previous quarter, and $11.9 million for the comparable quarter one year ago;
  • Noninterest-bearing checking increased $5.9 million, or 1.3%, to $449.1 million at March 31, 2022, compared to $443.1 million at December 31, 2021, and increased $58.2 million, or 14.9% from $390.9 million at March 31, 2021;
  • Net interest margin (“NIM”) improved to 4.24%, compared to 4.20% for the previous quarter, and 3.99% for the comparable quarter one year ago;
  • Loans receivable, net increased $69.1 million, or 4.0%, to $1.80 billion at March 31, 2022, compared to $1.73 billion at December 31, 2021, and increased $204.6 million, or 12.8% from $1.59 billion at March 31, 2021;
  • Loans receivable, net included 55 Paycheck Protection Program (“PPP”) loans with a total outstanding balance of $13.6 million and $183,000 of unrecognized deferred fees, net; and
  • At March 31, 2022, the Community Bank Leverage Ratio (“CBLR”) was 12.2% for the Bank and the Tier 1 leverage-based ratio was 10.8% for the Company.

Asset Summary

Total assets decreased $12.5 million, or 0.5%, to $2.27 billion at March 31, 2022, compared to $2.29 billion at December 31, 2021, and increased $98.3 million, or 4.5%, from $2.18 billion at March 31, 2021.  The quarter over linked quarter decrease in total assets was primarily due to decreases in loans held for sale (“HFS”) of $83.7 million, securities available-for-sale of $8.1 million and certificates of deposit (“CDs”) at other financial institutions of $2.4 million, partially offset by increases in loans receivable, net of $69.1 million, other assets of $5.4 million, total cash and cash equivalents of $3.1 million and deferred tax asset, net of $2.6 million.  The year over year increase was primarily due to increases in loans receivable, net of $204.6 million, securities available-for-sale of $62.0 million, other assets of $2.9 million, deferred tax asset, net of $2.4 million, servicing rights of $2.3 million, and accrued interest receivable of $1.0 million, partially offset by decreases in loans HFS of $114.2 million, total cash and cash equivalents of $55.8 million, CDs at other financial institutions of $4.1 million, and Federal Home Loan Bank (“FHLB”) stock of $1.8 million.

                                 
LOAN PORTFOLIO                                
(Dollars in thousands)   March 31, 2022   December 31, 2021   March 31, 2021  
       Amount      Percent   Amount      Percent   Amount      Percent  
REAL ESTATE LOANS                                
Commercial   $ 269,517     14.8 %   $ 264,429     15.1 %   $ 226,363     14.0 %  
Construction and development     258,680     14.2     240,553     13.7     240,156     14.8  
Home equity     44,394     2.4     41,017     2.3     41,774     2.6  
One-to-four-family (excludes HFS)     361,079     19.9     366,146     20.8     299,273     18.5  
Multi-family     196,924     10.8     178,158     10.2     122,303     7.5  
Total real estate loans     1,130,594     62.1     1,090,303     62.1     929,869     57.4  
                                 
CONSUMER LOANS                                
Indirect home improvement     359,443     19.7     336,285     19.2     290,859     17.9  
Marine     82,560     4.5     82,778     4.7     87,453     5.4  
Other consumer     2,994     0.2     2,980     0.2     3,194     0.2  
Total consumer loans     444,997     24.4     422,043     24.1     381,506     23.5  
                                 
COMMERCIAL BUSINESS LOANS                                
Commercial and industrial     207,480     11.4     208,552     11.9     260,572     16.1  
Warehouse lending     37,957     2.1     33,277     1.9     48,488     3.0  
Total commercial business loans     245,437     13.5     241,829     13.8     309,060     19.1  
Total loans receivable, gross     1,821,028     100.0 %     1,754,175     100.0 %     1,620,435     100.0 %  
                                 
Allowance for credit losses on loans (1)     (23,365 )         (25,635 )         (27,375 )      
Total loans receivable, net   $ 1,797,663         $ 1,728,540         $ 1,593,060        

__________________________
(1) Allowance in 2022 reported using current expected credit loss (“CECL”) method, all 2021 and prior periods’ allowance are reported in accordance with previous GAAP using the incurred loss method.

Loans receivable, net increased $69.1 million to $1.80 billion at March 31, 2022, from $1.73 billion at December 31, 2021, and increased $204.6 million from $1.59 billion at March 31, 2021. The quarter over linked quarter increase in total real estate loans was $40.3 million, including increases in multi-family loans of $18.8 million, construction and development loans of $18.1 million, commercial real estate loans of $5.1 million, and home equity loans of $3.4 million, partially offset by a decrease in one-to-four-family loans of $5.1 million. Consumer loans increased $23.0 million, primarily due to an increase of $23.2 million in indirect home improvement loans, partially offset by a decrease of $218,000 in marine loans. Commercial business loans increased $3.6 million, mainly as a result of an increase in warehouse lending of $4.7 million.

Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021 were as follows:

                                   
(Dollars in thousands)   For the Three Months Ended     For the Three Months Ended     Quarter   Quarter
    March 31, 2022     December 31, 2021     over Quarter   over Quarter
       Amount      Percent           Amount      Percent        $ Change      % Change
Purchase   $ 152,950   62.4 %   $ 182,851   53.9 %   $ (29,901 )   (16.4 )
Refinance     92,164   37.6       156,322   46.1       (64,158 )   (41.0 )
Total   $ 245,114   100.0 %   $ 339,173   100.0 %   $ (94,059 )   (27.7 )
                                   
    For the Three Months Ended     For the Three Months Ended     Year   Year
    March 31, 2022     March 31, 2021     over Year      over Year   
       Amount      Percent           Amount      Percent        $ Change      % Change
Purchase   $ 152,950   62.4 %   $ 185,461   42.7 %   $ (32,511 )   (17.5 )
Refinance     92,164   37.6       248,992   57.3       (156,828 )   (63.0 )
Total   $ 245,114   100.0 %   $ 434,453   100.0 %   $ (189,339 )   (43.6 )

During the quarter ended March 31, 2022, the Company sold $301.1 million of one-to-four-family loans compared to sales of $305.8 million during the previous quarter, and sales of $414.0 million during the same quarter one year ago. The decrease in purchase and refinance activity compared to the prior quarter reflects a limited available inventory of homes for sale and increased market interest rates adversely impacting refinance activity.

Gross margins on home loan sales decreased to 2.94% for the quarter ended March 31, 2022, compared to 3.66% in the previous quarter and decreased from 4.60% in the same quarter one year ago. Gross margins are defined as the margin on loans sold (cash sales) without the impact of deferred costs.

Liabilities and Equity Summary

Changes in deposits at the dates indicated are as follows:

                               
(Dollars in thousands)                              
    March 31, 2022   December 31, 2021          
Transactional deposits:    Amount    Percent    Amount    Percent       $ Change      % Change
Noninterest-bearing checking   $ 449,075   23.4 %   $ 443,133   23.1 %   $ 5,942     1.3  
Interest-bearing checking (2)     329,938   17.2     349,251   18.2     (19,313 )   (5.5 )
Escrow accounts related to mortgages serviced     26,067   1.4     16,389   0.9     9,678     59.1  
Subtotal     805,080   42.0     808,773   42.2     (3,693 )   (0.5 )
Savings     198,184   10.3     193,922   10.1     4,262     2.2  
Money market (3)     545,442   28.4     552,357   28.8     (6,915 )   (1.3 )
Subtotal     743,626   38.7     746,279   38.9     (2,653 )   (0.4 )
Certificates of deposit less than $100,000 (1)     210,984   11.0     186,974   9.8     24,010     12.8  
Certificates of deposit of $100,000 through $250,000     107,429   5.6     116,206   6.1     (8,777 )   (7.6 )
Certificates of deposit of $250,000 and over     52,669   2.7     57,512   3.0     (4,843 )   (8.4 )
Subtotal     371,082   19.3     360,692   18.9     10,390     2.9  
Total   $ 1,919,788   100.0 %   $ 1,915,744   100.0 %   $ 4,044     0.2  
                               
(Dollars in thousands)                              
    March 31, 2022   March 31, 2021          
Transactional deposits:    Amount    Percent    Amount    Percent    $ Change    % Change
Noninterest-bearing checking   $ 449,075   23.4 %   $ 390,855   22.0 %   $ 58,220     14.9  
Interest-bearing checking (2)     329,938   17.2     250,907   14.1     79,031     31.5  
Escrow accounts related to mortgages serviced     26,067   1.4     23,535   1.3     2,532     10.8  
Subtotal     805,080   42.0     665,297   37.4     139,783     21.0  
Savings     198,184   10.3     161,140   9.1     37,044     23.0  
Money market (3)     545,442   28.4     468,753   26.3     76,689     16.4  
Subtotal     743,626   38.7     629,893   35.4     113,733     18.1  
Certificates of deposit less than $100,000 (1)     210,984   11.0     285,505   16.0     (74,521 )   (26.1 )
Certificates of deposit of $100,000 through $250,000     107,429   5.6     133,570   7.5     (26,141 )   (19.6 )
Certificates of deposit of $250,000 and over     52,669   2.7     66,528   3.7     (13,859 )   (20.8 )
Subtotal     371,082   19.3     485,603   27.2     (114,521 )   (23.6 )
Total   $ 1,919,788   100.0 %   $ 1,780,793   100.0 %   $ 138,995     7.8  

_______________________
(1) Includes $127.6 million, $97.6 million, and $178.1 million of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.
(2) Includes $60.0 million, $90.0 million, and $0 of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.
(3) Includes $241,000, $5.0 million, and $11.0 million of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

The increases in deposits from December 31, 2021 to March 31, 2021 were primarily driven by growth in transactional deposit accounts due to new deposit relationships and in escrow accounts attributable to growth in the loan servicing portfolio.

At March 31, 2022, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, increased $30.0 million to $144.2 million, compared to $114.2 million at December 31, 2021, due to an increase of $30.0 million in brokered CDs. The year over year decrease in non-retail CDs of $43.9 million from $188.1 million at March 31, 2021, was primarily the result of a $50.6 million decrease in brokered CDs, offset by an increase of $6.7 million in online CDs. The reduction in non-retail CDs is directly tied to the Company replacing these non-retail CDs with brokered interest-bearing checking deposits of $60.0 million. The bulk of the wholesale funding activity has been tied to liability interest rate swap arrangements of $90.0 million that are funded with 90-day liabilities.

At March 31, 2022, borrowings comprised of FHLB advances decreased $7.0 million, or 16.5%, to $35.5 million from $42.5 million at December 31, 2021, and decreased $37.0 million, or 51.0% from $72.5 million at March 31, 2021. These decreases were due to repayments utilizing funds from deposit growth and reductions in loans held for sale.

Total stockholders’ equity decreased $11.6 million, to $236.0 million at March 31, 2022, from $247.5 million at December 31, 2021, and decreased $4.4 million, from $240.3 million at March 31, 2021. The decrease in stockholders’ equity during the current quarter was primarily due to net unrealized losses in securities available-for-sale of $16.5 million, net of tax, reflecting increases in market interest rates during the quarter, share repurchases totaling $3.5 million, and dividends paid of $1.6 million, partially offset by net income of $6.9 million and unrealized gains on cash flow hedges of $2.3 million, net of tax. In addition, the adoption of CECL on January 1, 2022, resulted in a $297,000 increase to retained earnings, reflecting the combined impact of the $2.9 million decrease to our ACLL and a $2.4 million increase to the reserve for unfunded commitments as of the adoption date. The Company repurchased 115,356 shares of its common stock at an average price of $31.45 per share. Book value per common share was $29.70 at March 31, 2022, compared to $30.75 at December 31, 2021, and $28.90 at March 31, 2021.

The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation at March 31, 2022, with a CBLR of 12.2%, compared to the normally required CBLR of greater than 9.0%. The Company’s Tier 1 leverage-based ratio was 10.8% at March 31, 2022.

Credit Quality

The ACLL at March 31, 2022, decreased to $23.4 million, or 1.28% of gross loans receivable, excluding loans HFS, compared to $25.6 million, or 1.46% of gross loans receivable, excluding loans HFS at December 31, 2021, and decreased from $27.4 million, or 1.69% of gross loans receivable, excluding loans HFS, at March 31, 2021. Nonperforming loans increased $968,000 to $6.8 million at March 31, 2022, from $5.8 million at December 31, 2021, and decreased $2.5 million from $9.3 million at March 31, 2021. The year over year decrease in the ACLL was primarily due to the one-time cumulative-effect adjustment of $2.9 million as of the CECL adoption date. The reserve for unfunded commitments increased $2.6 million to $3.1 million at March 31, 2022, compared to $499,000 at December 31, 2021, and increased from $398,000 at March 31, 2021, primarily due to the one-time cumulative-effect adjustment of $2.4 million as of the CECL adoption date and increases in unfunded commitments over the period.

Loans classified as substandard decreased $5.0 million to $13.1 million at March 31, 2022, compared to $18.1 million at December 31, 2021, and decreased $7.8 million from $20.9 million at March 31, 2021. The quarter over linked quarter decrease in substandard loans was attributable to decreases of $2.3 million in commercial and industrial loans, $1.7 million in one-to-four-family loans, and $916,000 in commercial real estate loans. The year over year decrease in substandard loans was primarily due to decreases of $6.2 million in one-to-four-family loans, $1.9 million in construction and development loans, and $934,000 in commercial real estate loans, partially offset by a $1.6 million increase in commercial and industrial loans. There were no other real estate owned (“OREO”) properties at March 31, 2022, December 31, 2021, or March 31, 2021.

Operating Results

Net interest income increased $2.6 million, to $22.7 million for the three months ended March 31, 2022, from $20.1 million for the three months ended March 31, 2021. This comparable quarter over quarter increase was primarily the result of an improved mix of loans versus other interest-bearing assets and increased balances in higher yielding loans funded by lower cost deposits.   Interest income increased $1.8 million, primarily due to an increase of $1.5 million in interest income on loans receivable, including fees, impacted primarily by loan growth and net deferred fees recognized upon SBA forgiveness of PPP loans. Interest expense decreased $780,000, primarily as a result of repricing deposit rates and a reduction in higher cost borrowings. For the three months ended March 31, 2022, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $264,000, as compared to $653,000 for the three months ended March 31, 2021.  

NIM increased 25 basis points to 4.24% for the three months ended March 31, 2022, from 3.99% for the same period in the prior year. The comparable quarter over quarter increase in NIM was impacted by an improved mix of interest-bearing assets, including a higher balance of higher yielding portfolio loans and investment securities and a significant decrease of interest-bearing cash balances earning a nominal yield combined with declining deposit and borrowing costs.

The average total cost of funds, including noninterest-bearing checking, decreased 19 basis points to 0.39% for the three months ended March 31, 2021, from 0.58% for the three months ended March 31, 2021. 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. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.

For the three months ended March 31, 2022, the provision for credit losses on loans was $852,000, compared to $1.5 million for the three months ended March 31, 2021, as calculated under the prior incurred loss methodology.   The provision for credit losses on loans reflects the increase in total loans receivable partially offset by a reduction in classified loans that were downgraded based on the COVID-19 pandemic and improved economic factors on credit-deterioration used to calculate the ACLL primarily related to the COVID-19 pandemic as compared to the same time last year. For the three months ended March 31, 2022, the provision for credit losses on unfunded commitments was $191,000, compared to a recovery of $9,000 for the three months ended March 31, 2021. The increase was attributable to a change in methodology as a result of the adoption of CECL, as well as increases in total unfunded commitments during the period. During the three months ended March 31, 2022, net charge-offs totaled $263,000, compared to $297,000 for the same period last year. The slight decrease in net charge-offs was primarily due to decreased commercial business loan charge-offs.  

Noninterest income decreased $7.2 million, to $5.9 million, for the three months ended March 31, 2022, from $13.0 million for the three months ended March 31, 2021. The decrease during the period primarily reflects a $7.8 million decrease in gain on sale of loans due primarily to a reduction in origination and sales volume of loans HFS and a reduction in gross margins of sold loans, partially offset by a $419,000 increase in other noninterest income, primarily due to proceeds received from a bank owned life insurance policy of $482,000, a $248,000 increase in service charges and fee income as a result of less amortization of mortgage servicing rights reflecting increased market interest rates and increased servicing fees from non-portfolio loans.  

Noninterest expense increased $2.7 million, to $19.1 million for the three months ended March 31, 2022, from $16.3 million for the three months ended March 31, 2021. The increase in noninterest expense primarily reflects a $2.0 million decrease in the recovery of servicing rights, from $2.1 million in the first quarter of 2021 to $1,000 the first quarter of 2022. Additional increases in noninterest expense include $363,000 in salaries and benefits, and $171,000 in professional and board fees.

About FS Bancorp

FS Bancorp, Inc., a Washington corporation, is the holding company for 1st Security Bank of Washington. The Bank provides loan and deposit services to customers who are predominantly small- and middle-market businesses and individuals in Western Washington through its 21 Bank branches, one headquarters office that produces loans and accepts deposits, and loan production offices in various suburban communities in the greater Puget Sound area, the Tri-Cities, and our newest lending office in Vancouver, 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: potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, generally, resulting from the COVID-19 pandemic and any governmental or societal responses thereto; 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 2022 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company and could negatively affect its operating and stock performance.

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts) (Unaudited)

                             
                      Linked   Year  
    March 31,    December 31,    March 31,    Quarter   Over Year  
       2022      2021      2021      % Change      % Change  
ASSETS                      
Cash and due from banks   $ 12,014     $ 12,043     $ 10,982     NM     9    
Interest-bearing deposits at other financial institutions     17,592       14,448       74,464     22     (76 )  
Total cash and cash equivalents     29,606       26,491       85,446     12     (65 )  
Certificates of deposit at other financial institutions     8,177       10,542       12,278     (22 )   (33 )  
Securities available-for-sale, at fair value     263,306       271,359       201,311     (3 )   31    
Securities held-to-maturity, net     7,428       7,500       7,500     (1 )   (1 )  
Loans held for sale, at fair value     42,068       125,810       156,281     (67 )   (73 )  
Loans receivable, net     1,797,663       1,728,540       1,593,060     4     13    
Accrued interest receivable     8,436       7,594       7,429     11     14    
Premises and equipment, net     26,116       26,591       26,798     (2 )   (3 )  
Operating lease right-of-use     5,172       4,557       5,085     13     2    
Federal Home Loan Bank (“FHLB”) stock, at cost     4,666       4,778       6,475     (2 )   (28 )  
Deferred tax asset, net     2,611             164     NM     1,492    
Bank owned life insurance (“BOLI”), net     36,890       37,092       36,440     (1 )   1    
Servicing rights, held at the lower of cost or fair value     18,041       16,970       15,735     6     15    
Goodwill     2,312       2,312       2,312            
Core deposit intangible, net     3,887       4,060       4,574     (4 )   (15 )  
Other assets     17,554       12,195       14,698     44     19    
TOTAL ASSETS   $ 2,273,933     $ 2,286,391     $ 2,175,586     (1 )   5    
LIABILITIES                              
Deposits:                              
Noninterest-bearing accounts   $ 475,142     $ 459,522     $ 414,390     3     15    
Interest-bearing accounts     1,444,646       1,456,222       1,366,403     (1 )   6    
  Total deposits     1,919,788       1,915,744       1,780,793     NM     8    
Borrowings     35,528       42,528       72,528     (16 )   (51 )  
Subordinated notes:                            
Principal amount     50,000       50,000       50,000            
Unamortized debt issuance costs     (589 )     (606 )     (656 )   (3 )   (10 )  
  Total subordinated notes less unamortized debt issuance costs     49,411       49,394       49,344     NM     NM    
Operating lease liability     5,406       4,792       5,285     13     2    
Deferred tax liability, net           1,183           (100 )      
Other liabilities     27,850       25,243       27,325     10     2    
  Total liabilities     2,037,983       2,038,884       1,935,275     NM     5    
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; 8,067,211 shares issued and outstanding at March 31, 2022, 8,169,887 at December 31, 2021, and 8,466,080 at March 31, 2021     81       82       85     (1 )   (5 )  
Additional paid-in capital     65,035       67,958       81,537     (4 )   (20 )  
Retained earnings     184,748       179,215       157,193     3     18    
Accumulated other comprehensive (loss) income, net of tax     (13,914 )     252       1,721     (5,621 )   (908 )  
Unearned shares – Employee Stock Ownership Plan (“ESOP”)                 (225 )       (100 )  
Total stockholders’ equity     235,950       247,507       240,311     (5 )   (2 )  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 2,273,933     $ 2,286,391     $ 2,175,586     (1 )   5    

Share data has been adjusted for all periods to reflect the 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
    March 31,    December 31,    March 31,    Over Qtr   Over Year
       2022      2021      2021      % Change      % Change
INTEREST INCOME                          
Loans receivable, including fees   $ 23,047     $ 23,199     $ 21,534     (1 )   7  
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions     1,579       1,587       1,250     (1 )   26  
Total interest and dividend income     24,626       24,786       22,784     (1 )   8  
INTEREST EXPENSE                          
Deposits     1,285       1,448       1,982     (11 )   (35 )
Borrowings     133       179       446     (26 )   (70 )
Subordinated notes     486       485       256     NM   90  
Total interest expense     1,904       2,112       2,684     (10 )   (29 )
NET INTEREST INCOME     22,722       22,674       20,100     NM   13  
PROVISION (BENEFIT) FOR CREDIT LOSSES     1,043       (1,000 )     1,500     (204 )   (30 )
NET INTEREST INCOME AFTER PROVISION (BENEFIT) FOR CREDIT LOSSES     21,679       23,674       18,600     (8 )   17  
NONINTEREST INCOME                          
Service charges and fee income     1,013       1,323       765     (23 )   32  
Gain on sale of loans     3,857       6,121       11,685     (37 )   (67 )
Earnings on cash surrender value of BOLI     217       219       214     (1 )   1  
Other noninterest income     789       232       370     240     113  
Total noninterest income     5,876       7,895       13,034     (26 )   (55 )
NONINTEREST EXPENSE                            
Salaries and benefits     11,972       13,390       11,609     (11 )   3  
Operations     2,479       3,031       2,467     (18 )   0  
Occupancy     1,223       1,300       1,139     (6 )   7  
Data processing     1,360       1,132       1,307     20     4  
Loss on sale of OREO                 9         NM
Loan costs     523       782       524     (33 )   NM
Professional and board fees     993       816       822     22     21  
Federal Deposit Insurance Corporation (“FDIC”) insurance     157       145       248     8     (37 )
Marketing and advertising     188       205       97     (8 )   94  
Amortization of core deposit intangible     173       160       177     8     (2 )
Recovery of servicing rights     (1 )     (2 )     (2,050 )   (50 )   (100 )
Total noninterest expense     19,067       20,959       16,349     (9 )   17  
INCOME BEFORE PROVISION FOR INCOME TAXES     8,488       10,610       15,285     (20 )   (44 )
PROVISION FOR INCOME TAXES     1,618       1,961       3,402     (17 )   (52 )
NET INCOME   $ 6,870     $ 8,649     $ 11,883     (21 )   (42 )
Basic earnings per share   $ 0.83     $ 1.04     $ 1.39     (20 )   (40 )
Diluted earnings per share   $ 0.81     $ 1.01     $ 1.35     (20 )   (40 )

Share and per share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.

               
KEY FINANCIAL RATIOS AND DATA (Unaudited)              
    At or For the Three Months Ended  
    March 31,    December 31,    March 31,   
       2022   2021   2021  
PERFORMANCE RATIOS:                             
Return on assets (ratio of net income to average total assets) (1)    1.23 %   1.54 %   2.26 %
Return on equity (ratio of net income to average equity) (1)   11.09   14.07   21.01  
Yield on average interest-earning assets (1)   4.60   4.59   4.52  
Average total cost of funds (1)   0.39   0.43   0.58  
Interest rate spread information – average during period   4.21   4.16   3.94  
Net interest margin (1)    4.24   4.20   3.99  
Operating expense to average total assets (1)   3.41   3.72   3.11  
Average interest-earning assets to average interest-bearing liabilities   142.54   141.28   137.59  
Efficiency ratio (2)   66.67   68.57   49.34  
               
    March 31,    December 31,    March 31,   
       2022   2021   2021  
ASSET QUALITY RATIOS AND DATA:              
Non-performing assets to total assets at end of period (3)   0.30 %   0.25 %   0.43 %
Non-performing loans to total gross loans (4)   0.37   0.33   0.57  
Allowance for credit losses – loans to non-performing loans (4)   343.65   440.24   295.12  
Allowance for credit losses – loans to gross loans receivable, excluding HFS loans   1.28   1.46   1.69  
               
CAPITAL RATIOS, BANK ONLY:              
Community Bank Leverage Ratio   12.20 %   12.16 %   11.82 %
               
CAPITAL RATIOS, COMPANY ONLY:              
Tier 1 leverage-based capital   10.76 %   10.78 %   10.91 %
                     
    At or For the Three Months Ended  
      March 31,    December 31,    March 31,   
(Post stock split adjusted)      2022       2021       2021  
PER COMMON SHARE DATA:                    
Basic earnings per share   $ 0.83   $ 1.04   $ 1.39  
Diluted earnings per share   $ 0.81   $ 1.01   $ 1.35  
Weighted average basic shares outstanding     8,145,138     8,186,775     8,430,752  
Weighted average diluted shares outstanding     8,294,966     8,381,775     8,678,168  
Common shares outstanding at end of period     7,945,539 (5)   8,048,215 (6)   8,317,014 (7)
Book value per share using common shares outstanding   $ 29.70   $ 30.75   $ 28.90  
Tangible book value per share using common shares outstanding (8)   $ 28.92   $ 29.96   $ 28.07  

Share and per share data has been adjusted for all periods to reflect the 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 8,067,211 at March 31, 2022, less 121,672 unvested restricted stock shares.
(6) Common shares were calculated using shares outstanding of 8,169,887 at December 31, 2021, less 121,672 unvested restricted stock shares.
(7) 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.
(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 March 31,    Year Over Year
Average Balances      2022      2021      $ Change
Assets                  
Loans receivable (1)   $ 1,834,443   $ 1,717,050   $ 117,393  
Securities available-for-sale, at fair value     278,608     183,719     94,889  
Securities held-to-maturity     7,500     7,500      
Interest-bearing deposits and certificates of deposit at other financial institutions     48,672     127,382     (78,710 )
FHLB stock, at cost     4,302     7,247     (2,945 )
Total interest-earning assets     2,173,525     2,042,898     130,627  
Noninterest-earning assets     96,746     87,700     9,046  
Total assets   $ 2,270,271   $ 2,130,598   $ 139,673  
Liabilities and stockholders’ equity                  
Interest-bearing accounts   $ 1,444,380   $ 1,326,329   $ 118,051  
Borrowings     31,006     130,174     (99,168 )
Subordinated notes     49,400     28,248     21,152  
Total interest-bearing liabilities     1,524,786     1,484,751     40,035  
Noninterest-bearing accounts     462,808     387,918     74,890  
Other noninterest-bearing liabilities     31,355     28,519     2,836  
Stockholders’ equity     251,322     229,410     21,912  
Total liabilities and stockholders’ equity   $ 2,270,271   $ 2,130,598   $ 139,673  

(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 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.

                   
    March 31,    December 31,    March 31, 
(Dollars in thousands, except share and per share amounts)      2022      2021      2021
Stockholders’ equity   $ 235,950     $ 247,507     $ 240,311  
Goodwill and core deposit intangible, net     (6,199 )     (6,372 )     (6,886 )
Tangible common stockholders’ equity   $ 229,751     $ 241,135     $ 233,425  
                   
Common shares outstanding at end of period     7,945,539       8,048,215       8,317,014  
                   
Common stockholders’ equity (book value) per share (GAAP)   $ 29.70     $ 30.75     $ 28.90  
Tangible common stockholders’ equity (tangible book value) per share (non-GAAP)   $ 28.92     $ 29.96     $ 28.07  

Share and per share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.

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

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