FS Bancorp, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request identifies 2022 Q4, this filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. FS Bancorp is the holding company for 1st Security Bank of Washington, a relationship-focused community bank serving Washington markets, with consumer, residential mortgage, commercial real estate, construction, and commercial business lending.
Financial performance and position
| Metric | FY 2022 / year-end | Comparable period |
|---|---|---|
| Net income | $29.6 million | $37.4 million in 2021 |
| Diluted earnings per share | $3.70 | $4.37 in 2021 |
| Net interest income | $104.3 million | $86.6 million in 2021 |
| Net interest margin | 4.46% | 4.13% in 2021 |
| Net interest income after provision for credit losses | $98.1 million | $86.1 million in 2021 |
| Noninterest income | $18.1 million | $37.5 million in 2021 |
| Noninterest expense | $79.2 million | $76.2 million in 2021 |
| Efficiency ratio | 64.70% | 61.41% in 2021 |
| Total assets | $2.63 billion | $2.29 billion at year-end 2021 |
| Gross loans / net loans | $2.22 billion / $2.19 billion | $1.75 billion gross / $1.73 billion net at year-end 2021 |
| Total deposits | $2.13 billion | $1.92 billion at year-end 2021 |
| Stockholders’ equity | $231.7 million | $247.5 million at year-end 2021 |
| Operating cash flow | $184.9 million | $109.0 million in 2021 |
| Net cash used by investing activities | $504.0 million | $310.8 million in 2021 |
| Net cash from financing activities | $334.1 million | $136.7 million in 2021 |
Interest income rose to $118.7 million from $96.4 million, while interest expense increased to $14.4 million from $9.7 million. The filing reports no standalone net profit margin percentage; net income was 11.4% of total interest income plus noninterest income in 2022, compared with 28.0% in 2021.
Year-end liquidity included $41.4 million in cash and cash equivalents and $283.9 million in cash, certificates at other institutions, and investment securities. FHLB advances were $186.5 million, versus $42.5 million a year earlier; $182.6 million was scheduled to mature in 2023. The bank reported $414.8 million of unused FHLB borrowing capacity, $205.8 million of FRB borrowing capacity, and $101.0 million of unsecured Fed Funds lines, none drawn at year-end. Management said available liquid assets and borrowing lines were sufficient for anticipated needs over at least 12 months.
The company had $50.0 million of subordinated notes due 2031, carrying a 3.75% fixed rate until February 2026 and then a floating rate. Bank regulatory capital ratios at year-end included 13.70% total risk-based capital, 12.45% Tier 1 risk-based capital, and 11.28% Tier 1 leverage; the bank was categorized as well capitalized.
Material changes versus 2021
- Net income declined 20.7%, primarily reflecting a $23.2 million decrease in gains on loan sales and higher credit-loss provision, partly offset by stronger net interest income.
- Loan-sale gains fell to $7.9 million from $31.1 million as mortgage originations and sales slowed with higher rates; one-to-four-family loan originations fell 46.7% and sales declined to $715.6 million from approximately $1.42 billion.
- Loans grew $464.7 million gross, led by indirect home improvement, construction and development, commercial real estate, and one-to-four-family lending. Deposits increased 11.1%, but certificates of deposit rose to 34.3% of deposits from 18.8%; brokered deposits were $393.9 million, or 18.5% of deposits.
- The allowance for credit losses on loans was $28.0 million, or 1.26% of gross loans, versus $25.6 million, or 1.46%, in 2021. Nonaccrual loans increased to $8.7 million from $5.8 million; nonperforming loans were 0.39% of gross loans versus 0.33%.
- Stockholders’ equity declined $15.8 million, principally due to $32.9 million of after-tax unrealized losses on available-for-sale securities, $16.4 million of share repurchases, and $7.1 million of dividends, partly offset by net income. Available-for-sale securities had $42.6 million of gross unrealized losses at year-end.
Outlook, risks, and unusual items
- Management emphasized loan portfolio diversification, asset quality, core deposit growth, relationship banking, and selective market expansion. It did not provide numerical earnings, revenue, or margin guidance.
- On February 24, 2023, after year-end, the bank completed its purchase of seven Columbia State Bank branches. It assumed approximately $425.5 million in deposits and acquired $65.8 million in performing loans; final purchase accounting remained preliminary.
- Management cited inflation, possible recession and higher interest rates as risks to borrowers, property values, loan demand, funding costs, and margins. Other material exposures include concentration in consumer and indirect home improvement lending, commercial real estate and construction lending, dealer reliance, uninsured deposits, mortgage banking volatility, and cybersecurity and third-party service-provider risks.
- Construction and land development loans were 106.5% of bank regulatory capital; commercial real estate loans, as defined by regulators, were 293.9% of capital. The company noted heightened supervisory attention may apply to such concentrations.
- The company adopted CECL on January 1, 2022. Adoption reduced the loan allowance by $2.9 million, increased the allowance for unfunded commitments by $2.4 million, and resulted in a $297,000 net-of-tax increase to opening retained earnings. The 2022 credit-loss provision was $6.6 million, compared with $500,000 in 2021.
- The filing describes immaterial corrections to prior-period EPS and deposit classifications; prior financial statements were not restated. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting, and identified the loan-loss allowance as a critical audit matter.
Important facts for investors to verify
- Reconcile the decline in earnings with lower mortgage sale volume and margins, rising funding costs, and the CECL-related credit-loss provision.
- Assess whether deposit mix changes, brokered funding, uninsured deposits, and upcoming certificate maturities affect liquidity or cost of funds.
- Review credit quality trends, especially nonaccrual commercial business loans, consumer charge-offs, construction exposure, and allowance assumptions.
- Evaluate the impact of the seven-branch acquisition, including deposit retention, purchase accounting, integration costs, and the acquired loan portfolio.
- Monitor available-for-sale securities’ unrealized losses, capital and dividend capacity, and sensitivity to interest-rate changes.