FS Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. FS Bancorp is the holding company for 1st Security Bank of Washington, a community bank serving Washington and Oregon markets, with commercial and consumer banking and home lending segments. Comparisons below are with Q1 2023 unless otherwise noted; balance-sheet changes are versus December 31, 2023. Amounts are in U.S. dollars.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable / prior date |
|---|---|---|
| Net income | $8.4 million | $8.2 million in Q1 2023 |
| Diluted earnings per share | $1.06 | $1.04 in Q1 2023 |
| Net interest income | $30.3 million | $30.7 million in Q1 2023 |
| Net interest margin | 4.26% | 4.70% in Q1 2023 |
| Provision for credit losses | $1.4 million | $2.1 million in Q1 2023 |
| Noninterest income | $5.1 million | $5.2 million in Q1 2023 |
| Noninterest expense | $23.5 million | $23.5 million in Q1 2023 |
| Efficiency ratio | 66.36% | 65.56% in Q1 2023 |
| Total assets | $2.97 billion | $2.97 billion at December 31, 2023 |
| Loans receivable, net | $2.42 billion | $2.40 billion at December 31, 2023 |
| Total deposits | $2.47 billion | $2.52 billion at December 31, 2023 |
| Borrowings | $129.9 million | $93.7 million at December 31, 2023 |
| Stockholders’ equity | $277.9 million | $264.5 million at December 31, 2023 |
| Cash and cash equivalents | $45.4 million | $65.7 million at December 31, 2023 |
| Net cash from operating activities | $0.3 million | $18.5 million in Q1 2023 |
Material changes and drivers
- Net income increased modestly, primarily as the provision for credit losses fell by $709,000. This was partly offset by lower net interest income and noninterest income.
- Interest income rose $6.3 million, reflecting higher average earning-asset balances and yields. Interest expense increased $6.6 million, mainly from higher deposit rates, a shift toward certificates of deposit, and greater borrowing use. The cost of interest-bearing liabilities rose to 2.95% from 1.77%.
- Noninterest income included an $8.2 million gain on sale of mortgage servicing rights (MSRs) and an $8.0 million loss on sale of investment securities. Management said the securities sale was intended to improve portfolio yield and reduce duration. MSR sale proceeds were $16.2 million; the serviced-for-others loan balance fell to $1.56 billion from $2.83 billion at year-end.
- Deposits declined $57.0 million, including a $92.2 million net decrease in brokered deposits. Borrowings rose $36.2 million and included $89.9 million from the Federal Reserve’s Bank Term Funding Program, $23.0 million in FRB overnight borrowings, and $17.1 million in FHLB advances.
- Operating cash flow was substantially lower year over year. Cash decreased $20.3 million during the quarter; investing cash flow was $2.6 million and financing cash used was $23.1 million.
- Book value per common share increased to $36.06 from $34.36 at year-end. Equity benefited from earnings and a $6.9 million improvement in accumulated other comprehensive loss, partly offset by $2.0 million in dividends.
Credit, liquidity, capital, outlook and risks
- Gross loans were $2.45 billion; the allowance for credit losses was $31.5 million, or 1.29% of gross loans excluding loans held for sale. Net charge-offs were $1.5 million, up from $410,000 in Q1 2023. Nonperforming loans rose to $12.1 million, or 0.49% of gross loans, from $11.0 million, or 0.45%, at year-end. Classified loans were $24.9 million.
- Consumer lending—especially indirect home improvement—and commercial business lending accounted for notable charge-offs. Five contractor/dealers generated 77.1% of funded fixture-secured home improvement loan volume in the quarter, a concentration investors may wish to monitor.
- Uninsured deposits were estimated at $614.1 million, or 24.9% of deposits. CDs totaling $336.0 million were scheduled to mature within three months of quarter-end. Management said it expects most maturing relationship deposits to remain, but deposit flows and funding costs depend on rates, competition and economic conditions.
- Management reported unused FHLB borrowing capacity of $681.2 million and a $269.3 million FRB line, alongside $101.0 million of correspondent federal-funds lines. The BTFP had no unused capacity at quarter-end. Outstanding loan commitments totaled $566.6 million.
- The Bank was categorized as well capitalized. Its March 31 ratios were 10.6% Tier 1 leverage, 12.5% Tier 1 risk-based, 13.7% total risk-based and 12.5% CET1, exceeding applicable well-capitalized thresholds.
- The filing provides no specific earnings or margin guidance. Management’s stated strategy emphasizes loan diversification and growth, asset quality, lower-cost core deposits, broader customer relationships and selective market expansion. Management cautions that Q1 results are not necessarily indicative of full-year results.
- Risks highlighted include economic deterioration, inflation and interest-rate changes; deposit retention and funding costs; credit quality, including housing and commercial real estate; loan-sale market conditions; securities and MSR valuation volatility; competition; operational and third-party technology disruptions; and regulatory or legal developments. Management reported no material pending legal actions and no material changes to previously disclosed risk factors.
- The current quarterly dividend was $0.26 per share, subject to board discretion. Approximately $3.0 million remained available under the stock repurchase program at quarter-end. Disclosure controls were assessed as effective; no material internal-control changes were reported.
Important facts for investors to verify
- Whether deposit outflows and maturing CDs stabilize, and how much funding relies on brokered deposits and borrowings.
- Whether deposit-cost increases continue to outpace loan and securities yield increases, affecting net interest margin.
- Trends in delinquency, nonaccrual loans, net charge-offs and the allowance, particularly in indirect home improvement, marine and commercial lending.
- The realized and ongoing effects of securities repositioning and MSR sales on earnings, liquidity, servicing income and valuation sensitivity.
- Cash generation and liquidity after loan commitments, deposit maturities, dividends and repurchases; operating cash flow was only $0.3 million this quarter.
- Actual performance against management’s strategic priorities; the filing gives no quantified forward guidance.