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FS Bancorp, Inc. Reports 2021 Results Including $37.4 Million of Net Income or $4.32 Per Diluted Share and a 33.3% Dividend Increase to $0.20 Per Share for the Thirty-Sixth Consecutive Quarterly Dividend
Source: Nasdaq GlobeNewswire / 27 Jan 2022 06:00:01 America/New_York
MOUNTLAKE TERRACE, Wash., Jan. 27, 2022 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2021 total net income of $37.4 million, or $4.32 per diluted share, compared to $39.3 million, or $4.49 per diluted share last year. Fourth quarter net income was $8.6 million, or $1.01 per diluted share, compared to $11.4 million, or $1.30 per diluted share in the comparable quarter one year ago. 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.
“Fourth quarter results reflect strong loan growth funded by core deposits and continued diversified revenues supporting margins,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our thirty-sixth consecutive quarterly cash dividend which is being increased to $0.20 from $0.15 per share. The quarterly dividend of $0.20 will be paid on February 24, 2022, to shareholders of record as of February 10, 2022.”
CFO Matthew Mullet noted, “Improved credit performance and economic factors during 2021, as compared to 2020, supported a fourth quarter reversal for loan losses of $1.0 million.”
2021 Fourth Quarter and Year End Highlights
- Net income was $8.6 million for the fourth quarter of 2021, compared to $8.3 million in the previous quarter, and $11.4 million for the comparable quarter one year ago;
- Net interest income was unchanged at $22.7 million compared to the previous quarter, and improved from $19.9 million in the comparable quarter one year ago;
- Total loans receivable, net increased $50.5 million, or 3.0%, to $1.73 billion at December 31, 2021, compared to $1.68 billion at September 30, 2021, and increased $183.6 million, or 11.9% from $1.54 billion at December 31, 2020;
- Noninterest-bearing checking increased $20.0 million, or 4.7%, to $443.1 million at December 31, 2021, compared to $423.1 million at September 30, 2021, and increased $94.7 million, or 27.2% from $348.4 million at December 31, 2020;
- Net interest margin (“NIM”) improved to 4.20% for the three months ended December 31, 2021, compared to 3.99% for the three months ended December 31, 2020, and improved to 4.13% for the year ended December 31, 2021, compared to 4.02% for the year ended December 31, 2020;
- Repurchased 38,158 shares of our common stock during the fourth quarter;
- At December 31, 2021, loans receivable, net included 107 Paycheck Protection Program (“PPP”) loans with a total outstanding balance of $24.2 million and $447,000 of unrecognized deferred fees; and
- At December 31, 2021, 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 increased $57.7 million to $2.29 billion at December 31, 2021, compared to $2.23 billion at September 30, 2021, and increased $173.2 million, or 8.2%, from $2.11 billion at December 31, 2020. The quarter over linked quarter increase in total assets was primarily due to increases in loans receivable, net of $50.5 million, loans held for sale (“HFS”) of $7.7 million, securities available-for-sale of $2.6 million and other assets of $1.1 million, partially offset by decreases in total cash and cash equivalents of $1.8 million and certificates of deposit (“CDs”) at other financial institutions of $1.2 million. The year over year increase was primarily due to increases in loans receivable, net of $183.6 million, securities available-for-sale of $93.3 million, servicing rights of $4.4 million, and other assets of $2.5 million, partially offset by decreases in total cash and cash equivalents of $65.1 million, loans HFS of $40.6 million, Federal Home Loan Bank (“FHLB”) stock of $2.7 million, and CDs at other financial institutions of $1.7 million.
LOAN PORTFOLIO (Dollars in thousands) December 31, 2021 September 30, 2021 December 31, 2020 Amount Percent Amount Percent Amount Percent REAL ESTATE LOANS Commercial $ 265,038 15.1 % $ 217,911 12.7 % $ 222,719 14.1 % Construction and development 242,433 13.8 250,099 14.6 216,975 13.8 Home equity 40,558 2.3 42,095 2.5 43,093 2.7 One-to-four-family (excludes HFS) 366,388 20.8 365,326 21.4 311,093 19.8 Multi-family 178,694 10.1 165,240 9.7 131,601 8.4 Total real estate loans 1,093,111 62.1 1,040,671 60.9 925,481 58.8 CONSUMER LOANS Indirect home improvement 340,285 19.3 325,630 19.0 286,020 18.2 Marine 80,627 4.6 83,827 4.9 85,740 5.4 Other consumer 2,900 0.2 3,188 0.2 3,418 0.2 Total consumer loans 423,812 24.1 412,645 24.1 375,178 23.8 COMMERCIAL BUSINESS LOANS Commercial and industrial (includes PPP loans) 208,764 11.9 207,064 12.1 224,476 14.3 Warehouse lending 33,339 1.9 49,289 2.9 49,092 3.1 Total commercial business loans 242,103 13.8 256,353 15.0 273,568 17.4 Total loans receivable, gross 1,759,026 100.0 % 1,709,669 100.0 % 1,574,227 100.0 % Allowance for loan losses (25,635 ) (26,925 ) (26,172 ) Deferred costs and fees, net (5,061 ) (4,978 ) (4,017 ) Premiums on purchased loans, net 210 277 943 Total loans receivable, net $ 1,728,540 $ 1,678,043 $ 1,544,981
Loans receivable, net increased $50.5 million to $1.73 billion at December 31, 2021, from $1.68 billion at September 30, 2021, and increased $183.6 million from $1.54 billion at December 31, 2020. The quarter over linked quarter increase in total real estate loans was $52.4 million, including increases in commercial real estate loans of $47.1 million, multi-family loans of $13.5 million, and one-to-four-family loans of $1.1 million, partially offset by decreases in construction and development loans of $7.7 million and home equity loans of $1.5 million. Consumer loans increased $11.2 million, primarily due to an increase of $14.7 million in indirect home improvement loans, partially offset by a decrease in marine loans of $3.2 million. Commercial business loans decreased $14.3 million, mainly driven by a decrease in warehouse lending of $16.0 million, reflecting the recent increase in residential mortgage interest rates and reduced refinance activity.Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended December 31, 2021 and September 30, 2021, and for the three months ended and years ended December 31, 2021 and 2020 were as follows:
(Dollars in thousands) For the Three Months Ended For the Three Months Ended Quarter Quarter December 31, 2021 September 30, 2021 over Quarter over Quarter Amount Percent Amount Percent $ Change % Change Purchase $ 182,851 53.9 % $ 243,721 64.0 % $ (60,870 ) (25.0 ) Refinance 156,322 46.1 136,803 36.0 19,519 14.3 Total $ 339,173 100.0 % $ 380,524 100.0 % $ (41,351 ) (10.9 ) For the Three Months Ended For the Three Months Ended Year Year December 31, 2021 December 31, 2020 over Year over Year Amount Percent Amount Percent $ Change % Change Purchase $ 182,851 53.9 % $ 230,135 44.3 % $ (47,284 ) (20.5 ) Refinance 156,322 46.1 289,074 55.7 (132,752 ) (45.9 ) Total $ 339,173 100.0 % $ 519,209 100.0 % $ (180,036 ) (34.7 ) For the Year Ended For the Year Ended Year Year December 31, 2021 December 31, 2020 over Year over Year Amount Percent Amount Percent $ Change % Change Purchase $ 869,108 55.9 % $ 731,820 39.1 % $ 137,288 18.8 Refinance 685,727 44.1 1,141,277 60.9 (455,550 ) (39.9 ) Total $ 1,554,835 100.0 % $ 1,873,097 100.0 % $ (318,262 ) (17.0 )
During the quarter ended December 31, 2021, the Company sold $305.8 million of one-to-four-family loans compared to sales of $319.9 million during the previous quarter, and sales of $522.9 million during the same quarter one year ago. During the year ended December 31, 2021, the Company sold $1.42 billion of one-to-four-family loans compared to sales of $1.64 billion during the same period last year. The reduction in purchase activity compared to the prior quarter reflects limited available inventory of homes for sale and seasonal changes in housing demand in the Pacific Northwest.Gross margins on home loan sales increased to 3.66% during the quarter ended December 31, 2021, compared to 3.61% in the previous quarter and decreased from 4.76% in the same quarter one year ago. During the year ended December 31, 2021, gross margins on home loan sales decreased to 3.97%, compared to 4.25% in 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) December 31, 2021 September 30, 2021 Transactional deposits: Amount Percent Amount Percent $ Change % Change Noninterest-bearing checking $ 443,133 23.1 % $ 423,091 22.7 % $ 20,042 4.7 Interest-bearing checking 349,251 18.2 308,142 16.5 41,109 13.3 Escrow accounts related to mortgages serviced 16,389 0.9 23,515 1.3 (7,126 ) (30.3 ) Subtotal 808,773 42.2 754,748 40.5 54,025 7.2 Savings 193,922 10.1 191,487 10.3 2,435 1.3 Money market 552,357 28.8 497,571 26.7 54,786 11.0 Subtotal 746,279 38.9 689,058 37.0 57,221 8.3 Certificates of deposit less than $100,000 186,974 9.8 231,453 12.4 (44,479 ) (19.2 ) Certificates of deposit of $100,000 through $250,000 116,206 6.1 126,095 6.8 (9,889 ) (7.8 ) Certificates of deposit of $250,000 and over 57,512 3.0 62,296 3.3 (4,784 ) (7.7 ) Subtotal 360,692 18.9 419,844 22.5 (59,152 ) (14.1 ) Total $ 1,915,744 100.0 % $ 1,863,650 100.0 % $ 52,094 2.8 (Dollars in thousands) December 31, 2021 December 31, 2020 Transactional deposits: Amount Percent Amount Percent $ Change % Change Noninterest-bearing checking $ 443,133 23.1 % $ 348,421 20.8 % $ 94,712 27.2 Interest-bearing checking 349,251 18.2 226,282 13.5 122,969 54.3 Escrow accounts related to mortgages serviced 16,389 0.9 14,432 0.9 1,957 13.6 Subtotal 808,773 42.2 589,135 35.2 219,638 37.3 Savings 193,922 10.1 152,842 9.1 41,080 26.9 Money market 552,357 28.8 429,548 25.7 122,809 28.6 Subtotal 746,279 38.9 582,390 34.8 163,889 28.1 Certificates of deposit less than $100,000 186,974 9.8 299,157 17.9 (112,183 ) (37.5 ) Certificates of deposit of $100,000 through $250,000 116,206 6.1 135,901 8.1 (19,695 ) (14.5 ) Certificates of deposit of $250,000 and over 57,512 3.0 67,488 4.0 (9,976 ) (14.8 ) Subtotal 360,692 18.9 502,546 30.0 (141,854 ) (28.2 ) Total $ 1,915,744 100.0 % $ 1,674,071 100.0 % $ 241,673 14.4
The increase in deposits from December 31, 2020 was primarily driven by organic growth in customer relationships and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.At December 31, 2021, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, decreased $38.5 million to $114.2 million, compared to $152.6 million at September 30, 2021, due to a decrease of $38.0 million in brokered CDs. The year over year decrease in non-retail CDs of $82.4 million from $196.6 million at December 31, 2020, was primarily the result of an $88.9 million decrease in brokered CDs, offset by an increase of $6.4 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 $90.0 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 December 31, 2021, borrowings comprised of FHLB advances, were unchanged from $42.5 million at September 30, 2021, and decreased $123.3 million, or 74.4% from $165.8 million at December 31, 2020. The decrease in borrowings from the prior year is primarily due to the repayments of the following: $63.3 million of Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings, due in part to the Small Business Administration’s (“SBA”) forgiveness of the underlying PPP loans and $60.0 million of FHLB advances utilizing funds primarily from deposit growth.
For the year ended December 31, 2021, the Company 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%.
Total stockholders’ equity increased $7.1 million, to $247.5 million at December 31, 2021, from $240.5 million at September 30, 2021, and increased $17.5 million, from $230.0 million at December 31, 2020. The increase in stockholders’ equity during the current quarter was primarily due to net income of $8.6 million, partially offset by share repurchases totaling $1.3 million and dividends paid of $1.2 million. The Company repurchased 38,158 shares of its common stock at an average price of $34.01 per share. Book value per common share was $30.75 at December 31, 2021, compared to $29.78 at September 30, 2021, and $27.67 at December 31, 2020.
The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation at December 31, 2021, with a CBLR of 12.2%, 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-based ratio was 10.8% at December 31, 2021.
Credit Quality
The allowance for loan and lease losses at December 31, 2021, decreased to $25.6 million, or 1.46% of gross loans receivable, excluding loans HFS, compared to $26.9 million, or 1.57% of gross loans receivable, excluding loans HFS at September 30, 2021, and decreased from $26.2 million, or 1.66% of gross loans receivable, excluding loans HFS, at December 31, 2020. Nonperforming loans decreased $113,000 to $5.8 million at December 31, 2021, from $5.9 million at September 30, 2021, and decreased $1.9 million from $7.8 million at December 31, 2020. The year over year decrease was primarily due to the payoff of a nonperforming commercial business loan of $1.2 million and a nonperforming home equity loan of $307,000.
Loans classified as substandard increased $567,000 to $18.1 million at December 31, 2021, compared to $17.5 million at September 30, 2021, and increased $441,000 from $17.6 million at December 31, 2020. The quarter over linked quarter increase in substandard loans was attributable to a $628,000 increase in commercial and industrial loans and a $143,000 increase in one-to-four-family loans, partially offset by a $129,000 decrease in home equity loans. The year over year increase in substandard loans was primarily due to increases of $5.7 million in commercial and industrial loans, partially offset by a $4.7 million decrease in one-to-four-family loans. There was no other real estate owned (“OREO”) property at December 31, 2021 or September 30, 2021, compared to one OREO property in the amount of $90,000 at December 31, 2020.
As of December 31, 2021, the amount of loans remaining under interest-only payment/relief agreements due to COVID-19 included commercial real estate loans of $6.9 million and commercial business loans of $2.1 million. These loans were classified as current and accruing interest, with the exception of $1.2 million in commercial business loans which were classified as nonaccrual, yet current on contractual payments. These modifications were not classified as troubled debt restructurings (“TDRs”) pursuant to guidance in effect at the time of modification. At December 31, 2021 the Company had no TDRs.
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 $751,000, $868,000, and $1.5 million, on $84.3 million, $90.8 million, and $132.6 million of gross loans at December 31, 2021, September 30, 2021, and December 31, 2020, respectively.
Operating Results
Net interest income increased $2.8 million, to $22.7 million for the three months ended December 31, 2021, from $19.9 million for the three months ended December 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 income increased $1.8 million, primarily due to an increase of $1.4 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 $966,000, primarily as a result of repricing deposit rates and a reduction in higher cost borrowings. For the three months ended December 31, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $403,000. For the year ended December 31, 2021, net interest income increased by $12.5 million, to $86.6 million, from $74.1 million for the year ended December 31, 2020, in a similar manner as for the three-month comparison described above, with an increase in interest income of $7.5 million and a decrease in interest expense of $5.0 million. For the year ended December 31, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $2.3 million.
NIM increased 21 basis points to 4.20% for the three months ended December 31, 2021, from 3.99% for the same period in the prior year, and increased 11 basis points to 4.13% for the year ended December 31, 2021, from 4.02% for the year ended December 31, 2020. 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 increase in NIM between the year ended December 31, 2021, and 2020 primarily reflects the improved asset mix mentioned above and the reduction in deposit and borrowing costs.
The average total cost of funds, including noninterest-bearing checking, decreased 24 basis points to 0.43% for the three months ended December 31, 2021, from 0.67% for the three months ended December 31, 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 total cost of funds, including noninterest-bearing checking, decreased 35 basis points to 0.51% for the year ended December 31, 2021, from 0.86% for the year ended December 31, 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.
There was a negative provision for loan losses of $1.0 million for the three months ended December 31, 2021, compared to $1.6 million provision for loan losses for the three months ended December 31, 2020. The provision for loan losses was $500,000 for the year ended December 31, 2021, compared to $13.0 million for the year ended December 31, 2020. The reduction of the provision for loan losses between both periods reflects improved economic factors on credit-deterioration related to the COVID-19 pandemic utilized to calculate the allowance for loan losses and also reflects loan-level improvements in “watch” classified loans that were downgraded based on the COVID-19 pandemic at December 31, 2021, compared to the same time last year. During the three months ended December 31, 2021, net charge-offs totaled $290,000, compared to $229,000 for the same period last year. The increase in net charge-offs was primarily due to increased consumer loan charge-offs. Net charge-offs totaled $1.0 million during the year ended December 31, 2021, compared to $93,000 during the year ended December 31, 2020, due to the same reason mentioned above.
Noninterest income decreased $6.9 million, to $7.9 million, for the three months ended December 31, 2021, from $14.8 million for the three months ended December 31, 2020. The decrease during the period primarily reflects a $7.2 million decrease in gain on sale of loans due primarily to a reduction in the amount of originated and sold refinance loans, partially offset by a $516,000 increase in service charges and fee income primarily due to less amortization of mortgage servicing rights (“MSR”) and increased servicing fees from non-portfolio loans. Noninterest income decreased $17.8 million, to $37.5 million, for the year ended December 31, 2021, from $55.4 million for the year ended December 31, 2020. This decrease was the result of a $17.8 million decrease in gain on sale of loans and a $1.8 million decrease in other noninterest income due to the one- time sale of Class B Visa stock shares of $1.5 million last year, partially offset by a $2.0 million increase in service charges and fee income.
Noninterest expense increased $2.4 million, to $21.0 million for the three months ended December 31, 2021, from $18.6 million for the three months ended December 31, 2020. The increase in noninterest expense reflects a $2.5 million increase in salaries and benefits, primarily attributable to a reduction in recognized deferred costs on direct loan origination activities of $3.8 million and an increase in compensation of $1.2 million, partially offset by a decrease in incentives and commissions of $2.5 million. Noninterest expense increased $9.6 million, to $76.2 million for the year ended December 31, 2021, from $66.6 million for the year ended December 31, 2020. The increase during the year was primarily due to an increase of $11.6 million in salaries and benefits, mostly attributable to a reduction in recognized deferred costs on direct loan origination activities of $9.7 million and increases in compensation of $4.2 million and medical expenses of $2.0 million, partially offset by a decrease in incentives and commissions of $5.3 million. The primary offset to the increase in noninterest expense was due to the $4.0 million net change in the value of servicing rights resulting in a $2.1 million recovery of servicing rights, from a $2.0 million impairment recognized last year due to the low interest rate environment from the government’s response to 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 11 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 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 December 31, September 30, December 31, Quarter Over Year 2021 2021 2020 % Change % Change ASSETS Cash and due from banks $ 12,043 $ 11,426 $ 11,554 5 4 Interest-bearing deposits at other financial institutions 14,448 16,906 80,022 (15 ) (82 ) Total cash and cash equivalents 26,491 28,332 91,576 (6 ) (71 ) Certificates of deposit at other financial institutions 10,542 11,782 12,278 (11 ) (14 ) Securities available-for-sale, at fair value 271,359 268,802 178,018 1 52 Securities held-to-maturity 7,500 7,500 7,500 — — Loans held for sale, at fair value 125,810 118,106 166,448 7 (24 ) Loans receivable, net 1,728,540 1,678,043 1,544,981 3 12 Accrued interest receivable 7,594 7,797 7,030 (3 ) 8 Premises and equipment, net 26,591 27,243 27,343 (2 ) (3 ) Operating lease right-of-use 4,557 4,875 4,949 (7 ) (8 ) Federal Home Loan Bank (“FHLB”) stock, at cost 4,778 4,871 7,439 (2 ) (36 ) Other real estate owned (“OREO”) — — 90 — (100 ) Deferred tax asset, net — 303 — (100 ) — Bank owned life insurance (“BOLI”), net 37,092 36,873 36,226 1 2 Servicing rights, held at the lower of cost or fair value 16,970 16,497 12,595 3 35 Goodwill 2,312 2,312 2,312 — — Core deposit intangible, net 4,060 4,220 4,751 (4 ) (15 ) Other assets 12,195 11,138 9,705 9 26 TOTAL ASSETS $ 2,286,391 $ 2,228,694 $ 2,113,241 3 8 LIABILITIES Deposits: Noninterest-bearing accounts $ 459,522 $ 446,606 $ 362,853 3 27 Interest-bearing accounts 1,456,222 1,417,044 1,311,218 3 11 Total deposits 1,915,744 1,863,650 1,674,071 3 14 Borrowings 42,528 42,528 165,809 — (74 ) Subordinated notes: Principal amount 50,000 50,000 10,000 — 400 Unamortized debt issuance costs (606 ) (623 ) — (3 ) — Total subordinated notes less unamortized debt issuance costs 49,394 49,377 10,000 — 394 Operating lease liability 4,792 5,097 5,176 (6 ) (7 ) Deferred tax liability, net 1,183 — 58 — 1,940 Other liabilities 25,243 27,589 28,120 (9 ) (10 ) Total liabilities 2,038,884 1,988,241 1,883,234 3 8 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; 8,169,887 shares issued and outstanding at December 31, 2021, 8,208,045 at September 30, 2021, and 8,475,912 at December 31, 2020 82 82 85 — (2 ) Additional paid-in capital 67,958 68,481 81,275 (1 ) (16 ) Retained earnings 179,215 171,786 146,405 4 22 Accumulated other comprehensive income, net of tax 252 198 2,533 27 (90 ) Unearned shares – Employee Stock Ownership Plan (“ESOP”) — (94 ) (291 ) (100 ) (100 ) Total stockholders’ equity 247,507 240,453 230,007 3 8 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,286,391 $ 2,228,694 $ 2,113,241 3 8 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 December 31, September 30, December 31, Over Qtr Over Year 2021 2021 2020 % Change % Change INTEREST INCOME Loans receivable, including fees $ 23,199 $ 23,520 $ 21,758 (1 ) 7 Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions 1,587 1,487 1,189 7 33 Total interest and dividend income 24,786 25,007 22,947 (1 ) 8 INTEREST EXPENSE Deposits 1,448 1,629 2,310 (11 ) (37 ) Borrowings 179 227 503 (21 ) (64 ) Subordinated notes 485 496 265 (2 ) 83 Total interest expense 2,112 2,352 3,078 (10 ) (31 ) NET INTEREST INCOME 22,674 22,655 19,869 — 14 (REVERSAL) PROVISION FOR LOAN LOSSES (1,000 ) — 1,601 — (162 ) NET INTEREST INCOME AFTER (REVERSAL) PROVISION FOR LOAN LOSSES 23,674 22,655 18,268 4 30 NONINTEREST INCOME Service charges and fee income 1,323 1,073 807 23 64 Gain on sale of loans 6,121 6,885 13,350 (11 ) (54 ) Earnings on cash surrender value of BOLI 219 218 220 — — Other noninterest income 232 222 414 5 (44 ) Total noninterest income 7,895 8,398 14,791 (6 ) (47 ) NONINTEREST EXPENSE Salaries and benefits 13,390 12,790 10,903 5 23 Operations 3,031 2,628 2,686 15 13 Occupancy 1,300 1,227 1,244 6 5 Data processing 1,132 1,309 1,230 (14 ) (8 ) OREO expenses — — 2 — NM Loan costs 782 842 522 (7 ) 50 Professional and board fees 816 757 847 8 (4 ) Federal Deposit Insurance Corporation (“FDIC”) insurance 145 120 255 21 (43 ) Marketing and advertising 205 177 172 16 19 Amortization of core deposit intangible 160 177 177 (10 ) (10 ) (Recovery) impairment of servicing rights (2 ) (11 ) 570 (82 ) (100 ) Total noninterest expense 20,959 20,016 18,608 5 13 INCOME BEFORE PROVISION FOR INCOME TAXES 10,610 11,037 14,451 (4 ) (27 ) PROVISION FOR INCOME TAXES 1,961 2,706 3,087 (28 ) (36 ) NET INCOME $ 8,649 $ 8,331 $ 11,364 4 (24 ) Basic earnings per share $ 1.04 $ 0.99 $ 1.33 5 (22 ) Diluted earnings per share $ 1.01 $ 0.97 $ 1.30 4 (22 ) Share and per 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)Year Ended Year December 31, December 31, Over Year 2021 2020 % Change INTEREST INCOME Loans receivable, including fees $ 90,737 $ 84,128 8 Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions 5,637 4,709 20 Total interest and dividend income 96,374 88,837 8 INTEREST EXPENSE Deposits 6,929 11,980 (42 ) Borrowings 1,074 1,961 (45 ) Subordinated note 1,722 776 122 Total interest expense 9,725 14,717 (34 ) NET INTEREST INCOME 86,649 74,120 17 PROVISION FOR LOAN LOSSES 500 13,036 (96 ) NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 86,149 61,084 41 NONINTEREST INCOME Service charges and fee income 4,349 2,373 83 Gain on sale of loans 31,083 48,842 (36 ) Gain on sale of investment securities — 300 (100 ) Earnings on cash surrender value of BOLI 866 870 — Other noninterest income 1,215 2,974 (59 ) Total noninterest income 37,513 55,359 (32 ) NONINTEREST EXPENSE Salaries and benefits 49,721 38,095 31 Operations 10,791 10,471 3 Occupancy 4,892 4,736 3 Data processing 4,951 4,388 13 Loss on sale of OREO 9 2 350 OREO expenses — 4 (100 ) Loan costs 2,795 2,066 35 Professional and board fees 3,181 2,797 14 FDIC insurance 636 829 (23 ) Marketing and advertising 634 530 20 Amortization of core deposit intangible 691 706 (2 ) (Recovery) impairment of servicing rights (2,059 ) 1,969 (205 ) Total noninterest expense 76,242 66,593 14 INCOME BEFORE PROVISION FOR INCOME TAXES 47,420 49,850 (5 ) PROVISION FOR INCOME TAXES 10,008 10,586 (5 ) NET INCOME $ 37,412 $ 39,264 (5 ) Basic earnings per share $ 4.42 $ 4.57 (3 ) Diluted earnings per share $ 4.32 $ 4.49 (4 ) 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 December 31, September 30, December 31, 2021 2021 2020 PERFORMANCE RATIOS: Return on assets (ratio of net income to average total assets) (1) 1.54 % 1.49 % 2.18 % Return on equity (ratio of net income to average equity) (1) 14.07 13.82 20.48 Yield on average interest-earning assets (1) 4.59 4.67 4.61 Average total cost of funds (1) 0.43 0.48 0.67 Interest rate spread information – average during period 4.16 4.19 3.94 Net interest margin (1) 4.20 4.23 3.99 Operating expense to average total assets (1) 3.72 3.58 3.57 Average interest-earning assets to average interest-bearing liabilities 141.28 140.97 134.55 Efficiency ratio (2) 68.57 64.46 53.69 At or For the Year Ended December 31, December 31, 2021 2020 PERFORMANCE RATIOS: Return on assets (ratio of net income to average total assets) 1.71 % 2.02 % Return on equity (ratio of net income to average equity) 15.74 18.74 Yield on average interest-earning assets 4.59 4.82 Average total cost of funds 0.51 0.86 Interest rate spread information – average during period 4.09 3.96 Net interest margin 4.13 4.02 Operating expense to average total assets 3.48 3.43 Average interest-earning assets to average interest-bearing liabilities 139.74 133.62 Efficiency ratio (2) 61.41 51.43 December 31, September 30, December 31, 2021 2021 2020 ASSET QUALITY RATIOS AND DATA: Non-performing assets to total assets at end of period (3) 0.25 % 0.27 % 0.37 % Non-performing loans to total gross loans (4) 0.33 0.35 0.49 Allowance for loan losses to non-performing loans (4) 440.24 453.59 337.22 Allowance for loan losses to gross loans receivable, excluding HFS loans 1.46 1.57 1.66 CAPITAL RATIOS, BANK ONLY: Community Bank Leverage Ratio 12.16 % 11.93 % 10.86 % CAPITAL RATIOS, COMPANY ONLY: Tier 1 leverage-based capital 10.78 % 10.57 % 11.09 % At or For the Three Months Ended December 31, September 30, December 31, (Post stock split adjusted) 2021 2021 2020 PER COMMON SHARE DATA: Basic earnings per share $ 1.04 $ 0.99 $ 1.33 Diluted earnings per share $ 1.01 $ 0.97 $ 1.30 Weighted average basic shares outstanding 8,186,775 8,240,218 8,433,236 Weighted average diluted shares outstanding 8,381,775 8,480,769 8,610,679 Common shares outstanding at end of period 8,048,215 (5) 8,073,412 (6) 8,313,886 (7) Book value per share using common shares outstanding $ 30.75 $ 29.78 $ 27.67 Tangible book value per share using common shares outstanding (8) $ 29.96 $ 28.97 $ 26.82 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 8,169,887 at December 31, 2021, less 121,672 unvested restricted stock shares. (6) Common shares were calculated using shares outstanding of 8,208,045 at September 30, 2021, less 121,672 unvested restricted stock shares, and 12,961 unallocated ESOP shares. (7) Common shares were calculated using shares outstanding of 8,475,912 at December 31, 2020, less 110,184 unvested restricted stock shares, and 51,842 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 December 31,For the Year Ended
December 31,QTR Over QTR Year Over Year Average Balances 2021 2020 2021 2020 $ Change $ Change Assets Loans receivable, net of deferred loan fees (1) $ 1,813,922 $ 1,694,942 $ 1,762,832 $ 1,576,975 $ 118,980 $ 185,857 Securities available-for-sale, at fair value 267,325 169,586 229,027 155,804 97,739 73,223 Securities held-to-maturity 7,500 7,250 7,500 2,441 250 5,059 Interest-bearing deposits and certificates of deposit at other financial institutions 48,621 100,625 93,435 100,783 (52,004 ) (7,348 ) FHLB stock, at cost 4,637 7,602 5,494 8,079 (2,965 ) (2,585 ) Total interest-earning assets 2,142,005 1,980,005 2,098,288 1,844,082 162,000 254,206 Noninterest-earning assets 92,622 91,595 90,925 95,966 1,027 (5,041 ) Total assets $ 2,234,627 $ 2,071,600 $ 2,189,213 $ 1,940,048 $ 163,027 $ 249,165 Liabilities and stockholders’ equity Interest-bearing accounts $ 1,428,334 $ 1,286,725 $ 1,394,323 $ 1,222,395 $ 141,609 $ 171,928 Borrowings 38,429 174,899 63,128 147,836 (136,470 ) (84,708 ) Subordinated notes 49,384 9,919 44,160 9,899 39,465 34,261 Total interest-bearing liabilities 1,516,147 1,471,543 1,501,611 1,380,130 44,604 121,481 Noninterest-bearing accounts 444,371 347,798 421,319 323,086 96,573 98,233 Other noninterest-bearing liabilities 30,148 31,552 28,610 27,274 (1,404 ) 1,336 Stockholders’ equity 243,961 220,707 237,673 209,558 23,254 28,115 Total liabilities and stockholders’ equity $ 2,234,627 $ 2,071,600 $ 2,189,213 $ 1,940,048 $ 163,027 $ 249,165 (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.
December 31, September 30, December 31, (Dollars in thousands, except share and per share amounts) 2021 2021 2020 Stockholders' equity $ 247,507 $ 240,453 $ 230,007 Goodwill and core deposit intangible, net (6,372 ) (6,532 ) (7,063 ) Tangible common stockholders' equity $ 241,135 $ 233,921 $ 222,944 Common shares outstanding at end of period 8,048,215 8,073,412 8,313,886 Common stockholders' equity (book value) per share (GAAP) $ 30.75 $ 29.78 $ 27.67 Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 29.96 $ 28.97 $ 26.82 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 
