MOUNTLAKE TERRACE, WA / ACCESSWIRE / April 26, 2021 / FS Bancorp, Inc. (NASDAQ:FSBW) (the "Company"), the holding company for 1st Security Bank of Washington (the "Bank") today reported 2021 first quarter net income of $11.9 million, or $2.70 per diluted share, compared to $5.2 million, or $1.14 per diluted share for the same period last year.
"We want to take this opportunity to thank our loyal customers and commend the outstanding efforts of our 1st Security Bank teammates. We are proud of our strong fiscal performance and our continued commitment to the communities we serve even with the daily challenges from this pandemic," stated Joe Adams, CEO. "We are pleased to announce that our Board of Directors has approved our thirty-third consecutive quarterly cash dividend which is being increased to $0.27 from $0.26 per share. The dividend will be paid on May 20, 2021, to shareholders of record as of May 6, 2021."
CFO Matthew Mullet noted, "Our balance sheet management efforts reflect strong core deposit growth this quarter funding diversified lending pillars. We also began to utilize proceeds from the subordinated debt raised in the first quarter of 2021 to support our growth and enhance shareholder returns."
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 March 31, 2021, the amount of portfolio loans under payment/relief agreements includes commercial real estate loans of $22.9 million, commercial business loans of $11.5 million, a portfolio one-to-four-family loan of $308,000, and consumer loans of $157,000. Of these loans, $29.8 million (85.4%) are making interest only payments. Additional detail is provided below in the "Credit Quality" discussion.
During the first quarter of 2021, we continued our participation in the U.S. Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"). Recent legislation reopened the PPP beginning January 1, 2021 through May 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits. For borrowers in the communities we serve, during the first quarter of 2021, the Company funded 286 PPP loans totaling $48.0 million under this second PPP program. PPP loan balances originated in 2020 totaling $26.1 million were submitted for approval and forgiven by the SBA. As of March 31, 2021, the Company serviced 471 PPP loans totaling $83.8 million.
Branch operations continue to remain flexible to satisfy governmental restrictions and public health authority guidance provided for the communities in which we operate. The majority of our employees continue to work remotely, where feasible.
2021 First Quarter Highlights
- Net income was $11.9 million for the first quarter of 2021, compared to $11.4 million in the previous quarter, and $5.2 million for the comparable quarter one year ago;
- Total gross loans increased $50.9 million during the quarter to $1.63 billion at March 31, 2021, compared to $1.57 billion at December 31, 2020, and $1.41 billion at March 31, 2020;
- Originated $434.5 million of one-to-four-family loans including a 61.8% increase in purchase production from the comparable quarter in 2020 and sold $414.0 million of these loans at a gross margin of 4.60%;
- Originated $48.0 million in PPP loans during the first quarter of 2021 with $2.0 million in associated deferred fees and had $26.1 million in PPP loans receiving SBA forgiveness during the same period;
- Total deposits increased $106.7 million during the quarter to $1.78 billion, including an increase of $76.2 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;
- Repaid $10.0 million in subordinated notes at 6.5% and issued $50.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes in a private placement transaction announced on February 10, 2021, at an initial fixed rate of 3.75% to support general corporate purposes including providing capital to support the organic growth of the Bank, potential share repurchase activities, and potential acquisition opportunities;
- Our Board of Directors approved a renewed and increased share repurchase plan providing up to $15.0 million of shares to be repurchased through June 30, 2022, depending on market conditions and other factors including the Company's liquidity requirements; and
- The Bank's Community Bank Leverage Ratio ("CBLR") was 11.8% at March 31, 2021, reflecting the Company's contribution of $25.0 million of subordinated debt proceeds and strong retained earnings.
Asset Summary
Total assets increased $62.3 million, or 3.0%, to $2.18 billion at March 31, 2021, compared to $2.11 billion at December 31, 2020, and increased $328.4 million, or 17.8%, from $1.85 billion at March 31, 2020. The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $48.1 million, securities available-for-sale of $23.3 million, other assets of $5.0 million, and servicing rights of $3.1 million, partially offset by decreases in loans held for sale ("HFS") of $10.2 million and total cash and cash equivalents of $6.1 million. The year over year increase was primarily due to increases in loans receivable, net of $200.0 million, securities available-for-sale of $44.8 million, loans HFS of $40.6 million, total cash and cash equivalents of $36.5 million, securities held-to-maturity of $7.5 million, servicing rights of $5.1 million, and other assets of $4.0 million, partially offset by decreases in certificates of deposit ("CDs") at other financial institutions of $5.6 million and Federal Home Loan Bank ("FHLB") stock of $4.4 million.
LOAN PORTFOLIO | ||||||||||||||||||||||||
(Dollars in thousands) | March 31, 2021 | December 31, 2020 | March 31, 2020 | |||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
REAL ESTATE LOANS | ||||||||||||||||||||||||
Commercial | $ | 226,799 | 14.0 | % | $ | 222,719 | 14.1 | % | $ | 220,509 | 15.6 | % | ||||||||||||
Construction and development | 241,677 | 14.9 | 216,975 | 13.8 | 168,658 | 12.0 | ||||||||||||||||||
Home equity | 41,352 | 2.5 | 43,093 | 2.7 | 37,503 | 2.7 | ||||||||||||||||||
One-to-four-family (excludes HFS) | 299,316 | 18.4 | 311,093 | 19.8 | 305,436 | 21.6 | ||||||||||||||||||
Multi-family | 122,623 | 7.5 | 131,601 | 8.4 | 130,570 | 9.2 | ||||||||||||||||||
Total real estate loans | 931,767 | 57.3 | 925,481 | 58.8 | 862,676 | 61.1 | ||||||||||||||||||
CONSUMER LOANS | ||||||||||||||||||||||||
Indirect home improvement | 294,455 | 18.1 | 286,020 | 18.2 | 261,566 | 18.5 | ||||||||||||||||||
Marine | 85,275 | 5.3 | 85,740 | 5.4 | 69,473 | 4.9 | ||||||||||||||||||
Other consumer | 3,119 | 0.2 | 3,418 | 0.2 | 4,056 | 0.3 | ||||||||||||||||||
Total consumer loans | 382,849 | 23.6 | 375,178 | 23.8 | 335,095 | 23.7 | ||||||||||||||||||
COMMERCIAL BUSINESS LOANS | ||||||||||||||||||||||||
Commercial and industrial | 261,932 | 16.1 | 224,476 | 14.3 | 149,086 | 10.6 | ||||||||||||||||||
Warehouse lending | 48,537 | 3.0 | 49,092 | 3.1 | 65,017 | 4.6 | ||||||||||||||||||
Total commercial business loans | 310,469 | 19.1 | 273,568 | 17.4 | 214,103 | 15.2 | ||||||||||||||||||
Total loans receivable, gross | 1,625,085 | 100.0 | % | 1,574,227 | 100.0 | % | 1,411,874 | 100.0 | % | |||||||||||||||
Allowance for loan and lease losses | (27,375 | ) | (26,172 | ) | (16,872 | ) | ||||||||||||||||||
Deferred costs and fees, net | (5,278 | ) | (4,017 | ) | (3,425 | ) | ||||||||||||||||||
Premiums on purchased loans, net | 628 | 943 | 1,493 | |||||||||||||||||||||
Total loans receivable, net | $ | 1,593,060 | $ | 1,544,981 | $ | 1,393,070 | ||||||||||||||||||
Loans receivable, net increased $48.1 million to $1.59 billion at March 31, 2021, from $1.54 billion at December 31, 2020, and increased $200.0 million from $1.39 billion at March 31, 2020. The quarter over linked quarter increase in total real estate loans was $6.3 million, including increases in construction and development loans of $24.7 million and commercial real estate loans of $4.1 million, offset by decreases in one-to-four-family loans of $11.8 million, multi-family loans of $9.0 million, and home equity loans of $1.7 million. Consumer loans increased $7.7 million, primarily due to an increase of $8.4 million in indirect home improvement loans. Commercial business loans increased $36.9 million, primarily due to an increase in commercial and industrial loans of $37.5 million, including PPP loans originated during the quarter totaling $48.0 million, partially offset by PPP loan forgiveness by the SBA of $26.1 million. The focused increase in commercial and industrial loans is tied to the Bank's investment in our business lending platform, including employees to service business lending customers and cash management teams to support business deposits.
Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021, and 2020 were as follows:
(Dollars in thousands) | For the Three Months Ended | For the Three Months Ended | Quarter | Quarter | ||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | over Quarter | over Quarter | |||||||||||||||||||||
| Amount | Percent | Amount | Percent | $ Change | % Change | |||||||||||||||||||
Purchase | $ | 185,461 | 42.7 | % | $ | 230,135 | 44.3 | % | $ | (44,674 | ) | (19.4 | ) | |||||||||||
Refinance | 248,992 | 57.3 | 289,074 | 55.7 | (40,082 | ) | (13.9 | ) | ||||||||||||||||
Total | $ | 434,453 | 100.0 | % | $ | 519,209 | 100.0 | % | $ | (84,756 | ) | (16.3 | ) | |||||||||||
| For the Three Months Ended | For the Three Months Ended | Year | Year | |||||||||||||||||||||
| March 31, 2021 | March 31, 2020 | over Year | over Year | |||||||||||||||||||||
| Amount | Percent | Amount | Percent | $ Change | % Change | |||||||||||||||||||
Purchase | $ | 185,461 | 42.7 | % | $ | 114,652 | 40.1 | % | $ | 70,809 | 61.8 | |||||||||||||
Refinance | 248,992 | 57.3 | 170,950 | 59.9 | 78,042 | 45.7 | ||||||||||||||||||
Total | $ | 434,453 | 100.0 | % | $ | 285,602 | 100.0 | % | $ | 148,851 | 52.1 | |||||||||||||
During the quarter ended March 31, 2021, the Company sold $414.0 million of one-to-four-family loans compared to sales of $522.9 million during the previous quarter, and sales of $212.4 million during the same quarter one year ago.
Gross margins on home loan sales increased to 4.60% at March 31, 2021, compared to 4.25% and 3.50% at December 31, 2020 and March 31, 2020, respectively. Gross margins are defined as the margin on loans sold without the impact of deferred fees and costs.
Liabilities and Equity Summary
Changes in deposits for the periods indicated are as follows:
(Dollars in thousands) | ||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Relationship-based transactional deposits: | Amount | Percent | Amount | Percent | $ Change | % Change | ||||||||||||||||||
Noninterest-bearing checking | $ | 390,855 | 22.0 | % | $ | 348,421 | 20.8 | % | $ | 42,434 | 12.2 | |||||||||||||
Interest-bearing checking | 250,907 | 14.1 | 226,282 | 13.5 | 24,625 | 10.9 | ||||||||||||||||||
Escrow accounts related to mortgages serviced | 23,535 | 1.3 | 14,432 | 0.9 | 9,103 | 63.1 | ||||||||||||||||||
Subtotal | 665,297 | 37.4 | 589,135 | 35.2 | 76,162 | 12.9 | ||||||||||||||||||
Savings | 161,140 | 9.1 | 152,842 | 9.1 | 8,298 | 5.4 | ||||||||||||||||||
Money market | 468,753 | 26.3 | 429,548 | 25.7 | 39,205 | 9.1 | ||||||||||||||||||
Subtotal | 629,893 | 35.4 | 582,390 | 34.8 | 47,503 | 8.2 | ||||||||||||||||||
Certificates of deposit less than $100,000 | 285,505 | 16.0 | 299,157 | 17.9 | (13,652 | ) | (4.6 | ) | ||||||||||||||||
Certificates of deposit of $100,000 through $250,000 | 133,570 | 7.5 | 135,901 | 8.1 | (2,331 | ) | (1.7 | ) | ||||||||||||||||
Certificates of deposit of $250,000 and over | 66,528 | 3.7 | 67,488 | 4.0 | (960 | ) | (1.4 | ) | ||||||||||||||||
Subtotal | 485,603 | 27.2 | 502,546 | 30.0 | (16,943 | ) | (3.4 | ) | ||||||||||||||||
Total | $ | 1,780,793 | 100.0 | % | $ | 1,674,071 | 100.0 | % | $ | 106,722 | 6.4 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
| March 31, 2021 | March 31, 2020 | |||||||||||||||||||||||
Relationship-based transactional deposits: | Amount | Percent | Amount | Percent | $ Change | % Change | ||||||||||||||||||
Noninterest-bearing checking | $ | 390,855 | 22.0 | % | $ | 267,966 | 18.5 | % | $ | 122,889 | 45.9 | |||||||||||||
Interest-bearing checking | 250,907 | 14.1 | 208,952 | 14.5 | 41,955 | 20.1 | ||||||||||||||||||
Escrow accounts related to mortgages serviced | 23,535 | 1.3 | 17,600 | 1.2 | 5,935 | 33.7 | ||||||||||||||||||
Subtotal | 665,297 | 37.4 | 494,518 | 34.2 | 170,779 | 34.5 | ||||||||||||||||||
Savings | 161,140 | 9.1 | 123,052 | 8.5 | 38,088 | 31.0 | ||||||||||||||||||
Money market | 468,753 | 26.3 | 303,405 | 21.0 | 165,348 | 54.5 | ||||||||||||||||||
Subtotal | 629,893 | 35.4 | 426,457 | 29.5 | 203,436 | 47.7 | ||||||||||||||||||
Certificates of deposit less than $100,000 | 285,505 | 16.0 | 263,787 | 18.2 | 21,718 | 8.2 | ||||||||||||||||||
Certificates of deposit of $100,000 through $250,000 | 133,570 | 7.5 | 176,322 | 12.2 | (42,752 | ) | (24.2 | ) | ||||||||||||||||
Certificates of deposit of $250,000 and over | 66,528 | 3.7 | 85,185 | 5.9 | (18,657 | ) | (21.9 | ) | ||||||||||||||||
Subtotal | 485,603 | 27.2 | 525,294 | 36.3 | (39,691 | ) | (7.6 | ) | ||||||||||||||||
Total | $ | 1,780,793 | 100.0 | % | $ | 1,446,269 | 100.0 | % | $ | 334,524 | 23.1 | |||||||||||||
As a result of the COVID-19 pandemic and the resulting availability of PPP loan funds and stimulus funds made available, the tables above reflect quarter over linked quarter and year over year changes in deposits, partially impacted by customers transferring funds from CDs to more liquid interest-bearing accounts, such as money market and interest-bearing checking.
At March 31, 2021, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, decreased $8.5 million to $188.1 million, compared to $196.6 million at December 31, 2020, due to decreases of $8.3 million in brokered CDs and $248,000 in online CDs. The year over year increase in non-retail CDs of $59.3 million from $128.8 million at March 31, 2020, was primarily the result of a $54.7 million increase in brokered CDs tied to longer term interest rate swap transactions, a $3.5 million increase in public funds CDs, and a $1.0 million increase in online CDs. Management remains focused on increasing its lower cost relationship-based deposits to fund long-term asset growth.
At March 31, 2021, borrowings decreased $93.3 million, or 56.3%, to $72.5 million, from $165.8 million at December 31, 2020, and decreased $86.6 million, or 54.4% from $159.1 million at March 31, 2020. The decrease in borrowings from the linked quarter and from the prior year is primarily due to the repayment of $63.3 million of Paycheck Protection Program Liquidity Facility ("PPPLF") borrowings, due in part to SBA forgiveness of the underlying PPP loans and $30.0 million of Federal Home Loan Bank ("FHLB") borrowings utilizing funds attributable to deposit growth.
Total stockholders' equity increased $10.3 million, to $240.3 million at March 31, 2021, from $230.0 million at December 31, 2020, and increased $39.5 million, from $200.8 million at March 31, 2020. The increase in stockholders' equity during the current quarter was primarily due to net income of $11.9 million, partially offset by dividends of $1.1 million and common stock repurchases of $411,000. The Company repurchased 7,416 shares of its common stock during the quarter ended March 31, 2021, at an average price of $55.42 per share. Book value per common share was $57.79 at March 31, 2021, compared to $55.33 at December 31, 2020, and $47.29 at March 31, 2020.
The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation ("FDIC") at March 31, 2021 with a CBLR of 11.8%, 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 Tier 1 leverage capital ratio was 10.9% at March 31, 2021.
Credit Quality
The allowance for loan and lease losses at March 31, 2021, increased to $27.4 million, or 1.68% of gross loans receivable, excluding loans HFS, compared to $26.2 million, or 1.66% of gross loans receivable, excluding loans HFS at December 31, 2020, and $16.9 million, or 1.20% of gross loans receivable, excluding loans HFS, at March 31, 2020. Nonperforming loans increased $1.5 million to $9.3 million at March 31, 2021, from $7.8 million at December 31, 2020 and increased from $3.2 million at March 31, 2020. The increase in nonperforming loans quarter over linked quarter was primarily related to the addition of a $1.9 million construction and development loan, partially offset by a $182,000 reduction in consumer loans and a $114,000 reduction in home equity loans, and the year over year increase was associated with borrowers adversely impacted by the COVID-19 pandemic, primarily in the commercial business portfolio.
Loans classified as substandard increased $3.3 million to $20.9 million at March 31, 2021, compared to $17.6 million at December 31, 2020, and increased $13.3 million from $7.6 million at March 31, 2020. The quarter over linked quarter increase in substandard loans was attributable to the $1.9 million nonperforming construction and development loan and one lending relationship with two commercial business loans totaling $1.8 million. The year over year increase in substandard loans was primarily due to a net increase of $6.4 million in commercial business loans, one-to-four-family loan increases of $5.8 million, and the addition of the nonperforming construction and development loan of $1.9 million. There was no other real estate owned ("OREO") property at March 31, 2021, compared to one OREO property in the amount of $90,000 at both December 31, 2020, and March 31, 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 $1.3 million, $1.5 million, and $2.3 million, on $121.9 million, $132.6 million, and $178.2 million of gross loans at March 31, 2021, December 31, 2020, and March 31, 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) 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: | March 31, 2021 | December 31, 2020* | March 31, 2020 | |||||||||
Construction and development | $ | 2,915 | $ | 3,480 | $ | 4,565 | ||||||
Education/worship | 243 | 734 | 5,525 | |||||||||
Food and beverage | 13,107 | 14,577 | 12,988 | |||||||||
Hospitality | 41,819 | 43,960 | 15,578 | |||||||||
Manufacturing | 3,184 | 12,579 | 18,122 | |||||||||
Retail | 1,932 | 2,554 | 4,058 | |||||||||
Transportation | 4,487 | 4,407 | 5,111 | |||||||||
Other | 13,778 | 20,979 | 18,452 | |||||||||
Total | $ | 81,465 | $ | 103,270 | $ | 84,399 | ||||||
*At December 31, 2020, "pass" rated commercial loans of $12.3 million were included with elevated risk monitoring as they were upgraded in the fourth quarter. Effective March 31, 2021, only risk rated commercial loans below "pass" will be shown in our COVID risk monitoring loan reporting.
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 $2.6 million, to $20.1 million for the three months ended March 31, 2021, from $17.5 million for the three months ended March 31, 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 expense decreased $1.8 million, primarily as a result of repricing deposit costs. Interest income increased $835,000, primarily due to an increase of $794,000 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. As of March 31, 2021, the total recognition of net deferred fees on forgiven and nonforgiven PPP loans was $653,000.
The net interest margin ("NIM") decreased 31 basis points to 3.99% for the three months ended March 31, 2021, from 4.30% for the same period in the prior year. The comparable quarter over quarter decrease in NIM was impacted by lower yielding loans, including reduced interest rates on new fixed-rate real estate loan originations and adjustable-rate commercial loans. During the quarter, $316,000 in premium was amortized on purchased loans with early payoffs, partially offset by $213,000 in discount accretion from the Anchor Acquisition.
The average total cost of funds, including noninterest-bearing checking, decreased 61 basis points to 0.58% for the three months ended March 31, 2021, from 1.19% for the three months ended March 31, 2020. This decrease was predominantly due to the decrease in cost for market rate deposits and borrowings following the significant decline in market rates in March 2020 due to the COVID-19 pandemic, as well as a strategic shift away from higher cost certificate of deposit funding. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.
For the three months ended March 31, 2021, the provision for loan losses was $1.5 million, compared to $3.7 million for the three months ended March 31, 2020 with the reduction of the provision reflecting the impact of the COVID-19 pandemic compared to the same time last year. During the three months ended March 31, 2021, net charge-offs totaled $297,000 compared to net charge-offs of $43,000 for the same period last year. The increase in net charge-offs were primarily due to increased indirect consumer loan charge-offs.
Noninterest income increased $4.1 million, to $13.0 million, for the three months ended March 31, 2021, from $8.9 million for the three months ended March 31, 2020. The increase during the period primarily reflects a $5.8 million increase in gain on sale of loans, partially offset by a decrease of $1.5 million in other noninterest income due to the net gain on the one-time sale of Class B Visa stock shares during the first quarter last year.
Noninterest expense increased $165,000, to $16.3 million for the three months ended March 31, 2021, from $16.2 million for the three months ended March 31, 2020. The increase in noninterest expense reflects a $2.1 million increase in salaries and benefits, mostly attributable to increases in incentives and commissions of $2.5 million. Other increases included data processing of $327,000, professional and board fees of $141,000, and FDIC insurance of $122,000, partially offset by the year over year variance in servicing rights of $2.6 million. In the comparable quarter for 2020, we recognized an impairment of $514,000 on our servicing rights asset due to falling interest rates. In the first quarter of 2021, we recognized a recovery of $2.1 million in servicing rights due to increasing rates experienced in the quarter.
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 headquarter office that produces loans and accepts deposits, and nine 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 | |||||||||||||||||||
| March 31, | December 31, | March 31, | Quarter | Over Year | ||||||||||||||||
| 2021 | 2020 | 2020 | % Change | % Change | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 10,982 | $ | 11,554 | $ | 12,928 | (5 | ) | (15 | ) | ||||||||||
Interest-bearing deposits at other financial institutions | 74,464 | 80,022 | 35,993 | (7 | ) | 107 | ||||||||||||||
Total cash and cash equivalents | 85,446 | 91,576 | 48,921 | (7 | ) | 75 | ||||||||||||||
Certificates of deposit at other financial institutions | 12,278 | 12,278 | 17,926 | - | (32 | ) | ||||||||||||||
Securities available-for-sale, at fair value | 201,311 | 178,018 | 156,466 | 13 | 29 | |||||||||||||||
Securities held-to-maturity | 7,500 | 7,500 | - | - | NM | |||||||||||||||
Loans held for sale, at fair value | 156,281 | 166,448 | 115,632 | (6 | ) | 35 | ||||||||||||||
Loans receivable, net | 1,593,060 | 1,544,981 | 1,393,070 | 3 | 14 | |||||||||||||||
Accrued interest receivable | 7,429 | 7,030 | 6,326 | 6 | 17 | |||||||||||||||
Premises and equipment, net | 26,798 | 27,343 | 28,655 | (2 | ) | (6 | ) | |||||||||||||
Operating lease right-of-use | 5,085 | 4,949 | 4,692 | 3 | 8 | |||||||||||||||
Federal Home Loan Bank ("FHLB") stock, at cost | 6,475 | 7,439 | 10,921 | (13 | ) | (41 | ) | |||||||||||||
Other real estate owned ("OREO") | - | 90 | 90 | NM | NM | |||||||||||||||
Deferred tax asset, net | 164 | - | - | NM | NM | |||||||||||||||
Bank owned life insurance ("BOLI"), net | 36,440 | 36,226 | 35,572 | 1 | 2 | |||||||||||||||
Servicing rights, held at the lower of cost or fair value | 15,735 | 12,595 | 10,626 | 25 | 48 | |||||||||||||||
Goodwill | 2,312 | 2,312 | 2,312 | - | - | |||||||||||||||
Core deposit intangible, net | 4,574 | 4,751 | 5,281 | (4 | ) | (13 | ) | |||||||||||||
Other assets | 14,698 | 9,705 | 10,678 | 51 | 38 | |||||||||||||||
TOTAL ASSETS | $ | 2,175,586 | $ | 2,113,241 | $ | 1,847,168 | 3 | 18 | ||||||||||||
LIABILITIES | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Noninterest-bearing accounts | $ | 414,390 | $ | 362,853 | $ | 285,566 | 14 | 45 | ||||||||||||
Interest-bearing accounts | 1,366,403 | 1,311,218 | 1,160,703 | 4 | 18 | |||||||||||||||
Total deposits | 1,780,793 | 1,674,071 | 1,446,269 | 6 | 23 | |||||||||||||||
Borrowings | 72,528 | 165,809 | 159,114 | (56 | ) | (54 | ) | |||||||||||||
Subordinated note: | ||||||||||||||||||||
Principal amount | 50,000 | 10,000 | 10,000 | 400 | 400 | |||||||||||||||
Unamortized debt issuance costs | (656 | ) | - | (110 | ) | NM | 496 | |||||||||||||
Total subordinated note less unamortized debt issuance costs | 49,344 | 10,000 | 9,890 | 393 | 399 | |||||||||||||||
Operating lease liability | 5,285 | 5,176 | 4,898 | 2 | 8 | |||||||||||||||
Deferred tax liability, net | - | 58 | 2,260 | NM | NM | |||||||||||||||
Other liabilities | 27,325 | 28,120 | 23,908 | (3 | ) | 14 | ||||||||||||||
Total liabilities | 1,935,275 | 1,883,234 | 1,646,339 | 3 | 18 | |||||||||||||||
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; 4,233,040 shares issued and outstanding at March 31, 2021, 4,237,956 at December 31, 2020, and 4,332,196 at March 31, 2020 | 42 | 42 | 43 | - | (2 | ) | ||||||||||||||
Additional paid-in capital | 81,580 | 81,318 | 84,517 | - | (3 | ) | ||||||||||||||
Retained earnings | 157,193 | 146,405 | 114,957 | 7 | 37 | |||||||||||||||
Accumulated other comprehensive income, net of tax | 1,721 | 2,533 | 1,819 | (32 | ) | (5 | ) | |||||||||||||
Unearned shares - Employee Stock Ownership Plan ("ESOP") | (225 | ) | (291 | ) | (507 | ) | (23 | ) | (56 | ) | ||||||||||
Total stockholders' equity | 240,311 | 230,007 | 200,829 | 4 | 20 | |||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,175,586 | $ | 2,113,241 | $ | 1,847,168 | 3 | 18 | ||||||||||||
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 | ||||||||||||||||
| 2021 | 2020 | 2020 | % Change | % Change | ||||||||||||||||
INTEREST INCOME | ||||||||||||||||||||
Loans receivable, including fees | $ | 21,534 | $ | 21,758 | $ | 20,740 | (1 | ) | 4 | |||||||||||
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions | 1,250 | 1,189 | 1,209 | 5 | 3 | |||||||||||||||
Total interest and dividend income | 22,784 | 22,947 | 21,949 | (1 | ) | 4 | ||||||||||||||
INTEREST EXPENSE | ||||||||||||||||||||
Deposits | 1,982 | 2,310 | 3,807 | (14 | ) | (48 | ) | |||||||||||||
Borrowings | 446 | 503 | 497 | (11 | ) | (10 | ) | |||||||||||||
Subordinated note | 256 | 265 | 172 | (3 | ) | 49 | ||||||||||||||
Total interest expense | 2,684 | 3,078 | 4,476 | (13 | ) | (40 | ) | |||||||||||||
NET INTEREST INCOME | 20,100 | 19,869 | 17,473 | 1 | 15 | |||||||||||||||
PROVISION FOR LOAN LOSSES | 1,500 | 1,601 | 3,686 | (6 | ) | (59 | ) | |||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 18,600 | 18,268 | 13,787 | 2 | 35 | |||||||||||||||
NONINTEREST INCOME | ||||||||||||||||||||
Service charges and fee income | 765 | 807 | 924 | (5 | ) | (17 | ) | |||||||||||||
Gain on sale of loans | 11,685 | 13,350 | 5,899 | (12 | ) | 98 | ||||||||||||||
Earnings on cash surrender value of BOLI | 214 | 220 | 216 | (3 | ) | (1 | ) | |||||||||||||
Other noninterest income | 370 | 414 | 1,852 | (11 | ) | (80 | ) | |||||||||||||
Total noninterest income | 13,034 | 14,791 | 8,891 | (12 | ) | 47 | ||||||||||||||
NONINTEREST EXPENSE | ||||||||||||||||||||
Salaries and benefits
| 11,609 | 10,903 | 9,547 | 6 | 22 | |||||||||||||||
Operations | 2,467 | 2,686 | 2,403 | (8 | ) | 3 | ||||||||||||||
Occupancy | 1,139 | 1,244 | 1,109 | (8 | ) | 3 | ||||||||||||||
Data processing | 1,307 | 1,230 | 980 | 6 | 33 | |||||||||||||||
Loss on sale of OREO | 9 | - | 2 | NM | 350 | |||||||||||||||
OREO expenses | - | 2 | - | NM | - | |||||||||||||||
Loan costs | 524 | 522 | 500 | - | 5 | |||||||||||||||
Professional and board fees | 822 | 847 | 681 | (3 | ) | 21 | ||||||||||||||
Federal Deposit Insurance Corporation ("FDIC") insurance | 248 | 255 | 126 | (3 | ) | 100 | ||||||||||||||
Marketing and advertising | 97 | 172 | 146 | (44 | ) | (34 | ) | |||||||||||||
Amortization of core deposit intangible | 177 | 177 | 176 | - | 1 | |||||||||||||||
(Recovery) impairment on servicing rights | (2,050 | ) | 570 | 514 | (460 | ) | (499 | ) | ||||||||||||
Total noninterest expense | 16,349 | 18,608 | 16,184 | (12 | ) | 1 | ||||||||||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 15,285 | 14,451 | 6,494 | 6 | 135 | |||||||||||||||
PROVISION FOR INCOME TAXES | 3,402 | 3,087 | 1,327 | 10 | 156 | |||||||||||||||
NET INCOME | $ | 11,883 | $ | 11,364 | $ | 5,167 | 5 | 130 | ||||||||||||
Basic earnings per share | $ | 2.78 | $ | 2.66 | $ | 1.16 | 5 | 140 | ||||||||||||
Diluted earnings per share | $ | 2.70 | $ | 2.60 | $ | 1.14 | 4 | 137 | ||||||||||||
KEY FINANCIAL RATIOS AND DATA (Unaudited) | ||||||||||||
| At or For the Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2021 | 2020 | 2020 | ||||||||||
PERFORMANCE RATIOS: | ||||||||||||
Return on assets (ratio of net income to average total assets) (1) | 2.26 | % | 2.18 | % | 1.20 | % | ||||||
Return on equity (ratio of net income to average equity) (1) | 21.01 | 20.48 | 10.23 | |||||||||
Yield on average interest-earning assets (1) | 4.52 | 4.61 | 5.40 | |||||||||
Average total cost of funds (1) | 0.58 | 0.67 | 1.19 | |||||||||
Interest rate spread information - average during period | 3.94 | 3.94 | 4.21 | |||||||||
Net interest margin (1) | 3.99 | 3.99 | 4.30 | |||||||||
Operating expense to average total assets (1) | 3.11 | 3.57 | 3.75 | |||||||||
Average interest-earning assets to average interest-bearing liabilities | 137.59 | 134.55 | 132.50 | |||||||||
Efficiency ratio (2) | 49.34 | 53.69 | 61.39 | |||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2021 | 2020 | 2020 | ||||||||||
ASSET QUALITY RATIOS AND DATA: | ||||||||||||
Non-performing assets to total assets at end of period (3) | 0.43 | % | 0.37 | % | 0.18 | % | ||||||
Non-performing loans to total gross loans (4) | 0.57 | 0.49 | 0.23 | |||||||||
Allowance for loan losses to non-performing loans (4) | 295.12 | 337.22 | 514.08 | |||||||||
Allowance for loan losses to gross loans receivable, excluding HFS loans | 1.68 | 1.66 | 1.20 | |||||||||
CAPITAL RATIOS, BANK ONLY: | ||||||||||||
Community Bank Leverage Ratio | 11.82 | % | 10.86 | % | 11.26 | % | ||||||
CAPITAL RATIOS, COMPANY ONLY: | ||||||||||||
Tier 1 leverage-based capital | 10.91 | % | 11.09 | % | 11.10 | % | ||||||
| At or For the Three Months Ended | ||||||||||||
| March 31, | December 31, | March 31, | ||||||||||
| 2021 | 2020 | 2020 | ||||||||||
PER COMMON SHARE DATA: | ||||||||||||
Basic earnings per share | $ | 2.78 | $ | 2.66 | $ | 1.16 | ||||||
Diluted earnings per share | $ | 2.70 | $ | 2.60 | $ | 1.14 | ||||||
Weighted average basic shares outstanding | 4,215,376 | 4,216,618 | 4,391,499 | |||||||||
Weighted average diluted shares outstanding | 4,339,084 | 4,305,340 | 4,478,918 | |||||||||
Common shares outstanding at end of period | 4,158,507 | (5) | 4,156,943 | (6) | 4,246,619 | (7) | ||||||
Book value per share using common shares outstanding | $ | 57.79 | $ | 55.33 | $ | 47.29 | ||||||
Tangible book value per share using common shares outstanding (8) | $ | 56.13 | $ | 53.63 | $ | 45.50 | ||||||
____________________________
- Annualized.
- Total noninterest expense as a percentage of net interest income and total noninterest income.
- 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.
- Non-performing loans consist of non-accruing loans and accruing loans 90 days or more past due.
- Common shares were calculated using shares outstanding of 4,233,040 at March 31, 2021, less 55,092 unvested restricted stock shares, and 19,441 unallocated ESOP shares.
- Common shares were calculated using shares outstanding of 4,237,956 at December 31, 2020, less 55,092 unvested restricted stock shares, and 25,921 unallocated ESOP shares.
- Common shares were calculated using shares outstanding of 4,332,196 at March 31, 2020, less 40,215 unvested restricted stock shares, and 45,362 unallocated ESOP shares.
- 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 | 2021 | 2020 | $ Change | |||||||||
Assets | ||||||||||||
Loans receivable, net of deferred loan fees (1) | $ | 1,717,050 | $ | 1,420,227 | $ | 296,823 | ||||||
Securities available-for-sale, at fair value | 183,719 | 136,260 | 47,459 | |||||||||
Securities held-to-maturity | 7,500 | - | 7,500 | |||||||||
Interest-bearing deposits and certificates of deposit at other financial institutions | 127,382 | 69,763 | 57,619 | |||||||||
FHLB stock, at cost | 7,247 | 8,259 | (1,012 | ) | ||||||||
Total interest-earning assets | 2,042,898 | 1,634,509 | 408,389 | |||||||||
Noninterest-earning assets | 87,700 | 99,526 | (11,826 | ) | ||||||||
Total assets | $ | 2,130,598 | $ | 1,734,035 | $ | 396,563 | ||||||
Liabilities and stockholders' equity | ||||||||||||
Interest-bearing accounts | $ | 1,326,329 | $ | 1,131,119 | $ | 195,210 | ||||||
Borrowings | 130,174 | 92,611 | 37,563 | |||||||||
Subordinated note | 28,248 | 9,887 | 18,361 | |||||||||
Total interest-bearing liabilities | 1,484,751 | 1,233,617 | 251,134 | |||||||||
Noninterest-bearing accounts | 387,918 | 273,442 | 114,476 | |||||||||
Other noninterest-bearing liabilities | 28,519 | 23,806 | 4,713 | |||||||||
Stockholders' equity | 229,410 | 203,170 | 26,240 | |||||||||
Total liabilities and stockholders' equity | $ | 2,130,598 | $ | 1,734,035 | $ | 396,563 | ||||||
(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.
| March 31, | December 31, | March 31, | ||||||||||
(Dollars in thousands, except share and per share amounts) | 2021 | 2020 | 2020 | |||||||||
Stockholders' equity | $ | 240,311 | $ | 230,007 | $ | 200,829 | ||||||
Goodwill and core deposit intangible, net | (6,886 | ) | (7,063 | ) | (7,593 | ) | ||||||
Tangible common stockholders' equity | $ | 233,425 | $ | 222,944 | $ | 193,236 | ||||||
Common shares outstanding at end of period | 4,158,507 | 4,156,943 | 4,246,619 | |||||||||
Common stockholders' equity (book value) per share (GAAP) | $ | 57.79 | $ | 55.33 | $ | 47.29 | ||||||
Tangible common stockholders' equity (tangible book value) per share (non-GAAP) | $ | 56.13 | $ | 53.63 | $ | 45.50 | ||||||
Contacts: | |
Joseph C. Adams, | |
Chief Executive Officer | |
Matthew D. Mullet, | |
Chief Financial Officer | |
(425) 771-5299 | |
www.FSBWA.com |
SOURCE: FS Bancorp, Inc.
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