FS Bancorp, Inc. Reports Second Quarter Net Income of $9.1 Million or $1.16 Per Diluted Share and the Forty-Second Consecutive Quarterly Dividend

MOUNTLAKE TERRACE, Wash., July 26, 2023 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. ( FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank” or “1st Security Bank”) today reported 2023 second quarter net income of $9.1 million, or $1.16 per diluted share, compared to $6.7 million, or $0.83 per diluted share, for the comparable quarter one year ago. For the six months ended June 30, 2023, net income was $17.3 million, or $2.19 per diluted share, compared to net income of $13.6 million, or $1.66 per diluted share, for the comparable six-month period in 2022.

“We remain focused on the successful integration of the seven branches acquired in February 2023 and our ability to service these new markets in the 1st Security Bank way,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our forty-second consecutive quarterly cash dividend of $0.25 per share, which will be paid on August 24, 2023, to shareholders of record as of August 10, 2023,” concluded Adams.

2023 Second Quarter Highlights

• Net income was $9.1 million for the second quarter of 2023, compared to $8.2 million in the previous quarter, and $6.7 million for the comparable quarter one year ago;
• Net interest margin (“NIM”) compressed slightly to 4.66%, compared to 4.70% for the previous quarter, and improved from 4.39% for the comparable quarter one year ago;
• Loans receivable, net increased $42.8 million, or 1.9%, to $2.34 billion at June 30, 2023, compared to $2.30 billion at March 31, 2023, and increased $396.4 million, or 20.4%, from $1.95 billion at June 30, 2022;
• Consumer loans, of which 88.0% are home improvement loans, increased $27.2 million, or 4.5%, to $633.9 million at June 30, 2023, compared to $606.7 million in the previous quarter and increased $148.6 million, or 30.6%, from $485.3 million in the comparable quarter one year ago. During the three months ended June 30, 2023, consumer loan originations included 84.4% of home improvement loans originated with a Fair Isaac and Company, Incorporated (“FICO”) score above 720 and 91.8% of home improvement loans with a UCC-2 security filing;
• Segment reporting in the second quarter of 2023 reflected net income of $9.1 million for the Commercial and Consumer Banking segment and $55,000 for the Home Lending segment, compared to $7.3 million and $873,000 in the prior quarter, respectively, and $7.5 million and ($756,000) in the second quarter of 2022, respectively;
• The ratio of available unencumbered cash and secured borrowing capacity at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank to uninsured deposits was 209% at June 30, 2023, compared to 183% in the prior quarter. The average deposit size per FDIC-insured account at the Bank was $33,000 for both June 30, 2023 and March 31, 2023; and
• Regulatory capital ratios at the Bank were 12.9% for total risk-based capital and 10.3% for Tier 1 leverage capital at June 30, 2023, compared to 12.7% for total risk-based capital and 10.4% for Tier 1 leverage capital at March 31, 2023.
  

Segment Reporting

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

The tables below provide a summary of segment reporting at or for the three and six months ended June 30, 2023 and 2022 (dollars in thousands):

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(1) Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of assigned liabilities to fund segment assets.

(2) Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value, and subsequently transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of noninterest income. For the three and six months ended June 30, 2023, the Company recorded a net decrease in fair value of $520,000 and a net increase in fair value of $57,000, respectively, as compared to a net decrease in fair value of $516,000 and $1.0 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023 and 2022, there were $14.3 million and $14.9 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from loans held for sale to loans held for investment.

Asset Summary

Total assets increased $122.8 million, or 4.4%, to $2.91 billion at June 30, 2023, compared to $2.78 billion at March 31, 2023, and increased $506.4 million, or 21.1%, from $2.40 billion at June 30, 2022. The quarter over linked quarter increase in total assets included increases in total cash and cash equivalents of $73.9 million, loans receivable, net of $42.8 million, certificates of deposit (“CDs”) at other financial institutions of $10.0 million, other assets of $7.9 million, and Federal Home Loan Bank (“FHLB”) stock of $2.7 million, partially offset by decreases in loans held for sale (“HFS”) of $6.6 million, securities available-for-sale of $6.5 million, and core deposit intangible (“CDI”), net of $1.0 million. The increases in cash and cash equivalents and CDs at other financial institutions was the result of management’s decision to maintain excess liquidity as a result of the recent turmoil in the banking industry following the failure of several banks. The $506.4 million increase in total assets at June 30, 2023, compared to June 30, 2022 was primarily due to organic loan growth funded through deposits received from the purchase of seven retail branches from Columbia State Bank completed on February 24, 2023 (“Branch Acquisition”). The year over year increase includes increases in loans receivable, net of $396.4 million, total cash and cash equivalents of $103.4 million, CDI, net of $15.6 million, CDs at other financial institutions of $9.8 million, other assets of $7.3 million, premises and equipment, net of $5.6 million, accrued interest receivable of $3.7 million, operating lease right-of-use of $2.6 million, goodwill of $1.3 million, deferred tax asset, net of $1.1 million, partially offset by decreases in securities available-for-sale of $22.0 million due to declines in fair value, loans HFS of $18.3 million, and servicing rights of $889,000.