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FS Bancorp, Inc. Reports Net Income for the First Quarter of $6.9 Million or $0.81 Per Diluted Share and the Thirty-Seventh Consecutive Quarterly Dividend
Source: Nasdaq GlobeNewswire / 28 Apr 2022 08:00:04 America/New_York
MOUNTLAKE TERRACE, Wash., April 28, 2022 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ: FSBW) (the “Company”), the holding company for 1st Security Bank of Washington (the “Bank”) today reported 2022 first quarter net income of $6.9 million, or $0.81 per diluted share, compared to $11.9 million, or $1.35 per diluted share for the same quarter last year. All share and per share data in this earnings release has been adjusted to reflect the two-for-one stock split, in the form of a 100% stock dividend, effective July 14, 2021.
“In line with investor feedback, we reaffirmed the Company’s commitment to returning value to our shareholders by successfully repurchasing 115,356 shares during the quarter at an average price of 106% of book value. We also early adopted the Current Expected Credit Loss standard as of January 1, 2022, with minimal impact to the Company, to further reduce investor uncertainty surrounding the pending accounting change,” stated Joe Adams, CEO. “We are also pleased that our Board of Directors approved our thirty-seventh consecutive quarterly cash dividend. The quarterly dividend of $0.20 and the special dividend of $0.10 as previously announced on April 6, 2022, will be paid on May 26, 2022, to shareholders of record as of May 12, 2022.”
2022 First Quarter Highlights
- Early adoption of the Current Expected Credit Losses (“CECL”) standard as of January 1, 2022, which resulted in a decrease of $2.9 million to our allowance for credit losses on loans (“ACLL”), an increase of $2.4 million to our allowance for credit losses on unfunded commitments and letters of credit, an increase of $72,000 to our allowance for held-to-maturity securities, and a net-of-tax cumulative-effect adjustment of $297,000 to increase the beginning balance of retained earnings;
- Repurchased 115,356 shares of our common stock during the first quarter and the Board of Directors approved an additional $10.0 million in repurchases as previously announced on April, 6, 2022;
- Net income was $6.9 million for the first quarter of 2022, compared to $8.6 million in the previous quarter, and $11.9 million for the comparable quarter one year ago;
- Noninterest-bearing checking increased $5.9 million, or 1.3%, to $449.1 million at March 31, 2022, compared to $443.1 million at December 31, 2021, and increased $58.2 million, or 14.9% from $390.9 million at March 31, 2021;
- Net interest margin (“NIM”) improved to 4.24%, compared to 4.20% for the previous quarter, and 3.99% for the comparable quarter one year ago;
- Loans receivable, net increased $69.1 million, or 4.0%, to $1.80 billion at March 31, 2022, compared to $1.73 billion at December 31, 2021, and increased $204.6 million, or 12.8% from $1.59 billion at March 31, 2021;
- Loans receivable, net included 55 Paycheck Protection Program (“PPP”) loans with a total outstanding balance of $13.6 million and $183,000 of unrecognized deferred fees, net; and
- At March 31, 2022, the Community Bank Leverage Ratio (“CBLR”) was 12.2% for the Bank and the Tier 1 leverage-based ratio was 10.8% for the Company.
Asset Summary
Total assets decreased $12.5 million, or 0.5%, to $2.27 billion at March 31, 2022, compared to $2.29 billion at December 31, 2021, and increased $98.3 million, or 4.5%, from $2.18 billion at March 31, 2021. The quarter over linked quarter decrease in total assets was primarily due to decreases in loans held for sale (“HFS”) of $83.7 million, securities available-for-sale of $8.1 million and certificates of deposit (“CDs”) at other financial institutions of $2.4 million, partially offset by increases in loans receivable, net of $69.1 million, other assets of $5.4 million, total cash and cash equivalents of $3.1 million and deferred tax asset, net of $2.6 million. The year over year increase was primarily due to increases in loans receivable, net of $204.6 million, securities available-for-sale of $62.0 million, other assets of $2.9 million, deferred tax asset, net of $2.4 million, servicing rights of $2.3 million, and accrued interest receivable of $1.0 million, partially offset by decreases in loans HFS of $114.2 million, total cash and cash equivalents of $55.8 million, CDs at other financial institutions of $4.1 million, and Federal Home Loan Bank (“FHLB”) stock of $1.8 million.
LOAN PORTFOLIO (Dollars in thousands) March 31, 2022 December 31, 2021 March 31, 2021 Amount Percent Amount Percent Amount Percent REAL ESTATE LOANS Commercial $ 269,517 14.8 % $ 264,429 15.1 % $ 226,363 14.0 % Construction and development 258,680 14.2 240,553 13.7 240,156 14.8 Home equity 44,394 2.4 41,017 2.3 41,774 2.6 One-to-four-family (excludes HFS) 361,079 19.9 366,146 20.8 299,273 18.5 Multi-family 196,924 10.8 178,158 10.2 122,303 7.5 Total real estate loans 1,130,594 62.1 1,090,303 62.1 929,869 57.4 CONSUMER LOANS Indirect home improvement 359,443 19.7 336,285 19.2 290,859 17.9 Marine 82,560 4.5 82,778 4.7 87,453 5.4 Other consumer 2,994 0.2 2,980 0.2 3,194 0.2 Total consumer loans 444,997 24.4 422,043 24.1 381,506 23.5 COMMERCIAL BUSINESS LOANS Commercial and industrial 207,480 11.4 208,552 11.9 260,572 16.1 Warehouse lending 37,957 2.1 33,277 1.9 48,488 3.0 Total commercial business loans 245,437 13.5 241,829 13.8 309,060 19.1 Total loans receivable, gross 1,821,028 100.0 % 1,754,175 100.0 % 1,620,435 100.0 % Allowance for credit losses on loans (1) (23,365 ) (25,635 ) (27,375 ) Total loans receivable, net $ 1,797,663 $ 1,728,540 $ 1,593,060 __________________________
(1) Allowance in 2022 reported using current expected credit loss (“CECL”) method, all 2021 and prior periods’ allowance are reported in accordance with previous GAAP using the incurred loss method.
Loans receivable, net increased $69.1 million to $1.80 billion at March 31, 2022, from $1.73 billion at December 31, 2021, and increased $204.6 million from $1.59 billion at March 31, 2021. The quarter over linked quarter increase in total real estate loans was $40.3 million, including increases in multi-family loans of $18.8 million, construction and development loans of $18.1 million, commercial real estate loans of $5.1 million, and home equity loans of $3.4 million, partially offset by a decrease in one-to-four-family loans of $5.1 million. Consumer loans increased $23.0 million, primarily due to an increase of $23.2 million in indirect home improvement loans, partially offset by a decrease of $218,000 in marine loans. Commercial business loans increased $3.6 million, mainly as a result of an increase in warehouse lending of $4.7 million.Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021 were as follows:
(Dollars in thousands) For the Three Months Ended For the Three Months Ended Quarter Quarter March 31, 2022 December 31, 2021 over Quarter over Quarter Amount Percent Amount Percent $ Change % Change Purchase $ 152,950 62.4 % $ 182,851 53.9 % $ (29,901 ) (16.4 ) Refinance 92,164 37.6 156,322 46.1 (64,158 ) (41.0 ) Total $ 245,114 100.0 % $ 339,173 100.0 % $ (94,059 ) (27.7 ) For the Three Months Ended For the Three Months Ended Year Year March 31, 2022 March 31, 2021 over Year over Year Amount Percent Amount Percent $ Change % Change Purchase $ 152,950 62.4 % $ 185,461 42.7 % $ (32,511 ) (17.5 ) Refinance 92,164 37.6 248,992 57.3 (156,828 ) (63.0 ) Total $ 245,114 100.0 % $ 434,453 100.0 % $ (189,339 ) (43.6 ) During the quarter ended March 31, 2022, the Company sold $301.1 million of one-to-four-family loans compared to sales of $305.8 million during the previous quarter, and sales of $414.0 million during the same quarter one year ago. The decrease in purchase and refinance activity compared to the prior quarter reflects a limited available inventory of homes for sale and increased market interest rates adversely impacting refinance activity.
Gross margins on home loan sales decreased to 2.94% for the quarter ended March 31, 2022, compared to 3.66% in the previous quarter and decreased from 4.60% in the same quarter one year ago. Gross margins are defined as the margin on loans sold (cash sales) without the impact of deferred costs.
Liabilities and Equity Summary
Changes in deposits at the dates indicated are as follows:
(Dollars in thousands) March 31, 2022 December 31, 2021 Transactional deposits: Amount Percent Amount Percent $ Change % Change Noninterest-bearing checking $ 449,075 23.4 % $ 443,133 23.1 % $ 5,942 1.3 Interest-bearing checking (2) 329,938 17.2 349,251 18.2 (19,313 ) (5.5 ) Escrow accounts related to mortgages serviced 26,067 1.4 16,389 0.9 9,678 59.1 Subtotal 805,080 42.0 808,773 42.2 (3,693 ) (0.5 ) Savings 198,184 10.3 193,922 10.1 4,262 2.2 Money market (3) 545,442 28.4 552,357 28.8 (6,915 ) (1.3 ) Subtotal 743,626 38.7 746,279 38.9 (2,653 ) (0.4 ) Certificates of deposit less than $100,000 (1) 210,984 11.0 186,974 9.8 24,010 12.8 Certificates of deposit of $100,000 through $250,000 107,429 5.6 116,206 6.1 (8,777 ) (7.6 ) Certificates of deposit of $250,000 and over 52,669 2.7 57,512 3.0 (4,843 ) (8.4 ) Subtotal 371,082 19.3 360,692 18.9 10,390 2.9 Total $ 1,919,788 100.0 % $ 1,915,744 100.0 % $ 4,044 0.2 (Dollars in thousands) March 31, 2022 March 31, 2021 Transactional deposits: Amount Percent Amount Percent $ Change % Change Noninterest-bearing checking $ 449,075 23.4 % $ 390,855 22.0 % $ 58,220 14.9 Interest-bearing checking (2) 329,938 17.2 250,907 14.1 79,031 31.5 Escrow accounts related to mortgages serviced 26,067 1.4 23,535 1.3 2,532 10.8 Subtotal 805,080 42.0 665,297 37.4 139,783 21.0 Savings 198,184 10.3 161,140 9.1 37,044 23.0 Money market (3) 545,442 28.4 468,753 26.3 76,689 16.4 Subtotal 743,626 38.7 629,893 35.4 113,733 18.1 Certificates of deposit less than $100,000 (1) 210,984 11.0 285,505 16.0 (74,521 ) (26.1 ) Certificates of deposit of $100,000 through $250,000 107,429 5.6 133,570 7.5 (26,141 ) (19.6 ) Certificates of deposit of $250,000 and over 52,669 2.7 66,528 3.7 (13,859 ) (20.8 ) Subtotal 371,082 19.3 485,603 27.2 (114,521 ) (23.6 ) Total $ 1,919,788 100.0 % $ 1,780,793 100.0 % $ 138,995 7.8 _______________________
(1) Includes $127.6 million, $97.6 million, and $178.1 million of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.
(2) Includes $60.0 million, $90.0 million, and $0 of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.
(3) Includes $241,000, $5.0 million, and $11.0 million of brokered deposits at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.
The increases in deposits from December 31, 2021 to March 31, 2021 were primarily driven by growth in transactional deposit accounts due to new deposit relationships and in escrow accounts attributable to growth in the loan servicing portfolio.At March 31, 2022, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, increased $30.0 million to $144.2 million, compared to $114.2 million at December 31, 2021, due to an increase of $30.0 million in brokered CDs. The year over year decrease in non-retail CDs of $43.9 million from $188.1 million at March 31, 2021, was primarily the result of a $50.6 million decrease in brokered CDs, offset by an increase of $6.7 million in online CDs. The reduction in non-retail CDs is directly tied to the Company replacing these non-retail CDs with brokered interest-bearing checking deposits of $60.0 million. The bulk of the wholesale funding activity has been tied to liability interest rate swap arrangements of $90.0 million that are funded with 90-day liabilities.
At March 31, 2022, borrowings comprised of FHLB advances decreased $7.0 million, or 16.5%, to $35.5 million from $42.5 million at December 31, 2021, and decreased $37.0 million, or 51.0% from $72.5 million at March 31, 2021. These decreases were due to repayments utilizing funds from deposit growth and reductions in loans held for sale.
Total stockholders’ equity decreased $11.6 million, to $236.0 million at March 31, 2022, from $247.5 million at December 31, 2021, and decreased $4.4 million, from $240.3 million at March 31, 2021. The decrease in stockholders’ equity during the current quarter was primarily due to net unrealized losses in securities available-for-sale of $16.5 million, net of tax, reflecting increases in market interest rates during the quarter, share repurchases totaling $3.5 million, and dividends paid of $1.6 million, partially offset by net income of $6.9 million and unrealized gains on cash flow hedges of $2.3 million, net of tax. In addition, the adoption of CECL on January 1, 2022, resulted in a $297,000 increase to retained earnings, reflecting the combined impact of the $2.9 million decrease to our ACLL and a $2.4 million increase to the reserve for unfunded commitments as of the adoption date. The Company repurchased 115,356 shares of its common stock at an average price of $31.45 per share. Book value per common share was $29.70 at March 31, 2022, compared to $30.75 at December 31, 2021, and $28.90 at March 31, 2021.
The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation at March 31, 2022, with a CBLR of 12.2%, compared to the normally required CBLR of greater than 9.0%. The Company’s Tier 1 leverage-based ratio was 10.8% at March 31, 2022.
Credit Quality
The ACLL at March 31, 2022, decreased to $23.4 million, or 1.28% of gross loans receivable, excluding loans HFS, compared to $25.6 million, or 1.46% of gross loans receivable, excluding loans HFS at December 31, 2021, and decreased from $27.4 million, or 1.69% of gross loans receivable, excluding loans HFS, at March 31, 2021. Nonperforming loans increased $968,000 to $6.8 million at March 31, 2022, from $5.8 million at December 31, 2021, and decreased $2.5 million from $9.3 million at March 31, 2021. The year over year decrease in the ACLL was primarily due to the one-time cumulative-effect adjustment of $2.9 million as of the CECL adoption date. The reserve for unfunded commitments increased $2.6 million to $3.1 million at March 31, 2022, compared to $499,000 at December 31, 2021, and increased from $398,000 at March 31, 2021, primarily due to the one-time cumulative-effect adjustment of $2.4 million as of the CECL adoption date and increases in unfunded commitments over the period.
Loans classified as substandard decreased $5.0 million to $13.1 million at March 31, 2022, compared to $18.1 million at December 31, 2021, and decreased $7.8 million from $20.9 million at March 31, 2021. The quarter over linked quarter decrease in substandard loans was attributable to decreases of $2.3 million in commercial and industrial loans, $1.7 million in one-to-four-family loans, and $916,000 in commercial real estate loans. The year over year decrease in substandard loans was primarily due to decreases of $6.2 million in one-to-four-family loans, $1.9 million in construction and development loans, and $934,000 in commercial real estate loans, partially offset by a $1.6 million increase in commercial and industrial loans. There were no other real estate owned (“OREO”) properties at March 31, 2022, December 31, 2021, or March 31, 2021.
Operating Results
Net interest income increased $2.6 million, to $22.7 million for the three months ended March 31, 2022, from $20.1 million for the three months ended March 31, 2021. This comparable quarter over quarter increase was primarily the result of an improved mix of loans versus other interest-bearing assets and increased balances in higher yielding loans funded by lower cost deposits. Interest income increased $1.8 million, primarily due to an increase of $1.5 million in interest income on loans receivable, including fees, impacted primarily by loan growth and net deferred fees recognized upon SBA forgiveness of PPP loans. Interest expense decreased $780,000, primarily as a result of repricing deposit rates and a reduction in higher cost borrowings. For the three months ended March 31, 2022, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $264,000, as compared to $653,000 for the three months ended March 31, 2021.
NIM increased 25 basis points to 4.24% for the three months ended March 31, 2022, from 3.99% for the same period in the prior year. The comparable quarter over quarter increase in NIM was impacted by an improved mix of interest-bearing assets, including a higher balance of higher yielding portfolio loans and investment securities and a significant decrease of interest-bearing cash balances earning a nominal yield combined with declining deposit and borrowing costs.
The average total cost of funds, including noninterest-bearing checking, decreased 19 basis points to 0.39% for the three months ended March 31, 2021, from 0.58% for the three months ended March 31, 2021. This decrease was predominantly due to the decline in cost for market rate deposits and borrowings as well as a managed runoff of higher cost CD funding. Management remains focused on matching deposit/liability duration with the duration of loans/assets where appropriate.
For the three months ended March 31, 2022, the provision for credit losses on loans was $852,000, compared to $1.5 million for the three months ended March 31, 2021, as calculated under the prior incurred loss methodology. The provision for credit losses on loans reflects the increase in total loans receivable partially offset by a reduction in classified loans that were downgraded based on the COVID-19 pandemic and improved economic factors on credit-deterioration used to calculate the ACLL primarily related to the COVID-19 pandemic as compared to the same time last year. For the three months ended March 31, 2022, the provision for credit losses on unfunded commitments was $191,000, compared to a recovery of $9,000 for the three months ended March 31, 2021. The increase was attributable to a change in methodology as a result of the adoption of CECL, as well as increases in total unfunded commitments during the period. During the three months ended March 31, 2022, net charge-offs totaled $263,000, compared to $297,000 for the same period last year. The slight decrease in net charge-offs was primarily due to decreased commercial business loan charge-offs.
Noninterest income decreased $7.2 million, to $5.9 million, for the three months ended March 31, 2022, from $13.0 million for the three months ended March 31, 2021. The decrease during the period primarily reflects a $7.8 million decrease in gain on sale of loans due primarily to a reduction in origination and sales volume of loans HFS and a reduction in gross margins of sold loans, partially offset by a $419,000 increase in other noninterest income, primarily due to proceeds received from a bank owned life insurance policy of $482,000, a $248,000 increase in service charges and fee income as a result of less amortization of mortgage servicing rights reflecting increased market interest rates and increased servicing fees from non-portfolio loans.
Noninterest expense increased $2.7 million, to $19.1 million for the three months ended March 31, 2022, from $16.3 million for the three months ended March 31, 2021. The increase in noninterest expense primarily reflects a $2.0 million decrease in the recovery of servicing rights, from $2.1 million in the first quarter of 2021 to $1,000 the first quarter of 2022. Additional increases in noninterest expense include $363,000 in salaries and benefits, and $171,000 in professional and board fees.
About FS Bancorp
FS Bancorp, Inc., a Washington corporation, is the holding company for 1st Security Bank of Washington. The Bank provides loan and deposit services to customers who are predominantly small- and middle-market businesses and individuals in Western Washington through its 21 Bank branches, one headquarters office that produces loans and accepts deposits, and loan production offices in various suburban communities in the greater Puget Sound area, the Tri-Cities, and our newest lending office in Vancouver, Washington. The Bank services home mortgage customers throughout Washington State with an emphasis in the Puget Sound and Tri-Cities home lending markets.
Forward-Looking Statements
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause the Company’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, generally, resulting from the COVID-19 pandemic and any governmental or societal responses thereto; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets, the Company’s ability to execute its plans to grow its residential construction lending, mortgage banking, and warehouse lending operations, and the geographic expansion of its indirect home improvement lending; secondary market conditions for loans and the Company’s ability to originate loans for sale and sell loans in the secondary market; legislative and regulatory changes, including as a result of the COVID-19 pandemic; and other factors described in the Company’s latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the SEC which are available on its website at www.fsbwa.com and on the SEC's website at www.sec.gov. Any of the forward-looking statements that the Company makes in this press release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be incorrect because of the inaccurate assumptions the Company might make, because of the factors illustrated above or because of other factors that cannot be foreseen by the Company. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause the Company’s actual results for 2022 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of the Company and could negatively affect its operating and stock performance.
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts) (Unaudited)Linked Year March 31, December 31, March 31, Quarter Over Year 2022 2021 2021 % Change % Change ASSETS Cash and due from banks $ 12,014 $ 12,043 $ 10,982 NM 9 Interest-bearing deposits at other financial institutions 17,592 14,448 74,464 22 (76 ) Total cash and cash equivalents 29,606 26,491 85,446 12 (65 ) Certificates of deposit at other financial institutions 8,177 10,542 12,278 (22 ) (33 ) Securities available-for-sale, at fair value 263,306 271,359 201,311 (3 ) 31 Securities held-to-maturity, net 7,428 7,500 7,500 (1 ) (1 ) Loans held for sale, at fair value 42,068 125,810 156,281 (67 ) (73 ) Loans receivable, net 1,797,663 1,728,540 1,593,060 4 13 Accrued interest receivable 8,436 7,594 7,429 11 14 Premises and equipment, net 26,116 26,591 26,798 (2 ) (3 ) Operating lease right-of-use 5,172 4,557 5,085 13 2 Federal Home Loan Bank (“FHLB”) stock, at cost 4,666 4,778 6,475 (2 ) (28 ) Deferred tax asset, net 2,611 — 164 NM 1,492 Bank owned life insurance (“BOLI”), net 36,890 37,092 36,440 (1 ) 1 Servicing rights, held at the lower of cost or fair value 18,041 16,970 15,735 6 15 Goodwill 2,312 2,312 2,312 — — Core deposit intangible, net 3,887 4,060 4,574 (4 ) (15 ) Other assets 17,554 12,195 14,698 44 19 TOTAL ASSETS $ 2,273,933 $ 2,286,391 $ 2,175,586 (1 ) 5 LIABILITIES Deposits: Noninterest-bearing accounts $ 475,142 $ 459,522 $ 414,390 3 15 Interest-bearing accounts 1,444,646 1,456,222 1,366,403 (1 ) 6 Total deposits 1,919,788 1,915,744 1,780,793 NM 8 Borrowings 35,528 42,528 72,528 (16 ) (51 ) Subordinated notes: Principal amount 50,000 50,000 50,000 — — Unamortized debt issuance costs (589 ) (606 ) (656 ) (3 ) (10 ) Total subordinated notes less unamortized debt issuance costs 49,411 49,394 49,344 NM NM Operating lease liability 5,406 4,792 5,285 13 2 Deferred tax liability, net — 1,183 — (100 ) — Other liabilities 27,850 25,243 27,325 10 2 Total liabilities 2,037,983 2,038,884 1,935,275 NM 5 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued or outstanding — — — — — Common stock, $.01 par value; 45,000,000 shares authorized; 8,067,211 shares issued and outstanding at March 31, 2022, 8,169,887 at December 31, 2021, and 8,466,080 at March 31, 2021 81 82 85 (1 ) (5 ) Additional paid-in capital 65,035 67,958 81,537 (4 ) (20 ) Retained earnings 184,748 179,215 157,193 3 18 Accumulated other comprehensive (loss) income, net of tax (13,914 ) 252 1,721 (5,621 ) (908 ) Unearned shares – Employee Stock Ownership Plan (“ESOP”) — — (225 ) — (100 ) Total stockholders’ equity 235,950 247,507 240,311 (5 ) (2 ) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,273,933 $ 2,286,391 $ 2,175,586 (1 ) 5 Share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts) (Unaudited)Three Months Ended Qtr Year March 31, December 31, March 31, Over Qtr Over Year 2022 2021 2021 % Change % Change INTEREST INCOME Loans receivable, including fees $ 23,047 $ 23,199 $ 21,534 (1 ) 7 Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions 1,579 1,587 1,250 (1 ) 26 Total interest and dividend income 24,626 24,786 22,784 (1 ) 8 INTEREST EXPENSE Deposits 1,285 1,448 1,982 (11 ) (35 ) Borrowings 133 179 446 (26 ) (70 ) Subordinated notes 486 485 256 NM 90 Total interest expense 1,904 2,112 2,684 (10 ) (29 ) NET INTEREST INCOME 22,722 22,674 20,100 NM 13 PROVISION (BENEFIT) FOR CREDIT LOSSES 1,043 (1,000 ) 1,500 (204 ) (30 ) NET INTEREST INCOME AFTER PROVISION (BENEFIT) FOR CREDIT LOSSES 21,679 23,674 18,600 (8 ) 17 NONINTEREST INCOME Service charges and fee income 1,013 1,323 765 (23 ) 32 Gain on sale of loans 3,857 6,121 11,685 (37 ) (67 ) Earnings on cash surrender value of BOLI 217 219 214 (1 ) 1 Other noninterest income 789 232 370 240 113 Total noninterest income 5,876 7,895 13,034 (26 ) (55 ) NONINTEREST EXPENSE Salaries and benefits 11,972 13,390 11,609 (11 ) 3 Operations 2,479 3,031 2,467 (18 ) 0 Occupancy 1,223 1,300 1,139 (6 ) 7 Data processing 1,360 1,132 1,307 20 4 Loss on sale of OREO — — 9 — NM Loan costs 523 782 524 (33 ) NM Professional and board fees 993 816 822 22 21 Federal Deposit Insurance Corporation (“FDIC”) insurance 157 145 248 8 (37 ) Marketing and advertising 188 205 97 (8 ) 94 Amortization of core deposit intangible 173 160 177 8 (2 ) Recovery of servicing rights (1 ) (2 ) (2,050 ) (50 ) (100 ) Total noninterest expense 19,067 20,959 16,349 (9 ) 17 INCOME BEFORE PROVISION FOR INCOME TAXES 8,488 10,610 15,285 (20 ) (44 ) PROVISION FOR INCOME TAXES 1,618 1,961 3,402 (17 ) (52 ) NET INCOME $ 6,870 $ 8,649 $ 11,883 (21 ) (42 ) Basic earnings per share $ 0.83 $ 1.04 $ 1.39 (20 ) (40 ) Diluted earnings per share $ 0.81 $ 1.01 $ 1.35 (20 ) (40 ) Share and per share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.
KEY FINANCIAL RATIOS AND DATA (Unaudited) At or For the Three Months Ended March 31, December 31, March 31, 2022 2021 2021 PERFORMANCE RATIOS: Return on assets (ratio of net income to average total assets) (1) 1.23 % 1.54 % 2.26 % Return on equity (ratio of net income to average equity) (1) 11.09 14.07 21.01 Yield on average interest-earning assets (1) 4.60 4.59 4.52 Average total cost of funds (1) 0.39 0.43 0.58 Interest rate spread information – average during period 4.21 4.16 3.94 Net interest margin (1) 4.24 4.20 3.99 Operating expense to average total assets (1) 3.41 3.72 3.11 Average interest-earning assets to average interest-bearing liabilities 142.54 141.28 137.59 Efficiency ratio (2) 66.67 68.57 49.34 March 31, December 31, March 31, 2022 2021 2021 ASSET QUALITY RATIOS AND DATA: Non-performing assets to total assets at end of period (3) 0.30 % 0.25 % 0.43 % Non-performing loans to total gross loans (4) 0.37 0.33 0.57 Allowance for credit losses - loans to non-performing loans (4) 343.65 440.24 295.12 Allowance for credit losses - loans to gross loans receivable, excluding HFS loans 1.28 1.46 1.69 CAPITAL RATIOS, BANK ONLY: Community Bank Leverage Ratio 12.20 % 12.16 % 11.82 % CAPITAL RATIOS, COMPANY ONLY: Tier 1 leverage-based capital 10.76 % 10.78 % 10.91 % At or For the Three Months Ended March 31, December 31, March 31, (Post stock split adjusted) 2022 2021 2021 PER COMMON SHARE DATA: Basic earnings per share $ 0.83 $ 1.04 $ 1.39 Diluted earnings per share $ 0.81 $ 1.01 $ 1.35 Weighted average basic shares outstanding 8,145,138 8,186,775 8,430,752 Weighted average diluted shares outstanding 8,294,966 8,381,775 8,678,168 Common shares outstanding at end of period 7,945,539 (5) 8,048,215 (6) 8,317,014 (7) Book value per share using common shares outstanding $ 29.70 $ 30.75 $ 28.90 Tangible book value per share using common shares outstanding (8) $ 28.92 $ 29.96 $ 28.07 Share and per share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.
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(1) Annualized.
(2) Total noninterest expense as a percentage of net interest income and total noninterest income.
(3) Non-performing assets consist of non-performing loans (which include non-accruing loans and accruing loans more than 90 days past due), foreclosed real estate and other repossessed assets.
(4) Non-performing loans consist of non-accruing loans and accruing loans 90 days or more past due.
(5) Common shares were calculated using shares outstanding of 8,067,211 at March 31, 2022, less 121,672 unvested restricted stock shares.
(6) Common shares were calculated using shares outstanding of 8,169,887 at December 31, 2021, less 121,672 unvested restricted stock shares.
(7) Common shares were calculated using shares outstanding of 8,466,080 at March 31, 2021, less 110,184 unvested restricted stock shares, and 38,882 unallocated ESOP shares.
(8) Tangible book value per share using outstanding common shares excludes intangible assets. This ratio represents a non-GAAP financial measure. See also, “Non-GAAP Financial Measures” below.(Dollars in thousands) For the Three Months Ended March 31, Year Over Year Average Balances 2022 2021 $ Change Assets Loans receivable (1) $ 1,834,443 $ 1,717,050 $ 117,393 Securities available-for-sale, at fair value 278,608 183,719 94,889 Securities held-to-maturity 7,500 7,500 - Interest-bearing deposits and certificates of deposit at other financial institutions 48,672 127,382 (78,710 ) FHLB stock, at cost 4,302 7,247 (2,945 ) Total interest-earning assets 2,173,525 2,042,898 130,627 Noninterest-earning assets 96,746 87,700 9,046 Total assets $ 2,270,271 $ 2,130,598 $ 139,673 Liabilities and stockholders’ equity Interest-bearing accounts $ 1,444,380 $ 1,326,329 $ 118,051 Borrowings 31,006 130,174 (99,168 ) Subordinated notes 49,400 28,248 21,152 Total interest-bearing liabilities 1,524,786 1,484,751 40,035 Noninterest-bearing accounts 462,808 387,918 74,890 Other noninterest-bearing liabilities 31,355 28,519 2,836 Stockholders’ equity 251,322 229,410 21,912 Total liabilities and stockholders’ equity $ 2,270,271 $ 2,130,598 $ 139,673 (1) Includes loans held for sale.
Non-GAAP Financial Measures:
In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States (“GAAP”), this earnings release contains tangible book value per share, a non-GAAP financial measure. Tangible common stockholders’ equity is calculated by excluding intangible assets from stockholders’ equity. For this financial measure, the Company’s intangible assets are goodwill and core deposit intangible. Tangible book value per share is calculated by dividing tangible common shareholders’ equity by the number of common shares outstanding. The Company believes that this non-GAAP measure is consistent with the capital treatment utilized by the investment community, which excludes intangible assets from the calculation of risk-based capital ratios and presents this measure to facilitate comparison of the quality and composition of the Company's capital over time and in comparison to its competitors.
This non-GAAP financial measure has inherent limitations, is not required to be uniformly applied, and is not audited. Further, this non-GAAP financial measure should not be considered in isolation or as a substitute for book value per share or total stockholders' equity determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.
Reconciliation of the GAAP book value per share and non-GAAP tangible book value per share is presented below.
March 31, December 31, March 31, (Dollars in thousands, except share and per share amounts) 2022 2021 2021 Stockholders' equity $ 235,950 $ 247,507 $ 240,311 Goodwill and core deposit intangible, net (6,199 ) (6,372 ) (6,886 ) Tangible common stockholders' equity $ 229,751 $ 241,135 $ 233,425 Common shares outstanding at end of period 7,945,539 8,048,215 8,317,014 Common stockholders' equity (book value) per share (GAAP) $ 29.70 $ 30.75 $ 28.90 Tangible common stockholders' equity (tangible book value) per share (non-GAAP) $ 28.92 $ 29.96 $ 28.07 Share and per share data has been adjusted for all periods to reflect the two-for-one stock split effective July 14, 2021.
Contacts: Joseph C. Adams, Chief Executive Officer Matthew D. Mullet, Chief Financial Officer (425) 771-5299 www.FSBWA.com 
