FSBW

FS Bancorp, Inc. (FSBW) - Q2 2024 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024. FS Bancorp, Inc. is the holding company for 1st Security Bank of Washington, a community-based savings bank operating 27 branches in Washington and Oregon. The Company operates two primary segments: Commercial and Consumer Banking, and Home Lending. The Company is classified as an accelerated filer and a smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income: Q2 2024 net income decreased slightly to $8.96 million from $9.12 million in Q2 2023. YTD 2024 net income increased to $17.36 million from $17.33 million in YTD 2023.
• Net Interest Income: Decreased $1.15 million (3.6%) in Q2 2024 compared to the prior year, driven by higher interest expense on deposits and borrowings outpacing increases in interest income. NIM compressed 37 basis points to 4.29%.
• Provision for Credit Losses: Increased to $1.08 million in Q2 2024 from $0.72 million in Q2 2023, reflecting loan portfolio growth, increased nonperforming loans, and higher net charge-offs.
• Noninterest Income: Increased $1.03 million (21.4%) in Q2 2024, driven by gains on loan sales and fair value adjustments, partially offset by lower service charges.
• Deposits: Total deposits decreased $139.5 million to $2.38 billion from year-end 2023, primarily due to a reduction in brokered certificates of deposit (CDs) as the Company utilized FHLB advances for better rates.
• Loan Portfolio: Total loans receivable (net) increased $55.7 million to $2.46 billion. Growth was led by commercial business loans (+$54.9 million) and one-to-four-family loans (+$21.2 million), offset by declines in construction and development loans.

Guidance, Outlook, and Risks

• Capital Position: The Bank remains "well capitalized," exceeding all regulatory requirements. Tier 1 leverage capital ratio was 10.94%, and Total risk-based capital ratio was 13.85% as of June 30, 2024.
• Asset Quality: Nonperforming loans increased to $11.41 million (0.46% of total gross loans) from $10.95 million at year-end 2023. Classified loans totaled $24.3 million, all substandard. There were no Other Real Estate Owned (OREO) properties.
• Liquidity: The Company maintains strong liquidity with $511.8 million in unused FHLB borrowing capacity and $267.6 million in Federal Reserve Bank lines of credit.
• Shareholder Returns: The Company repurchased 72,878 shares in Q2 2024. On July 11, 2024, the Board approved an additional $5.0 million stock repurchase program. Quarterly dividends remain at $0.26 per share (paid in Q2).
• Risks: Key risks include the impact of sustained high interest rates on net interest margin, potential economic slowdown affecting credit quality, and competition for deposits. The Company notes that declines in economic conditions could materially increase the ACL.

Investor Verification Checklist

• Deposit Mix Shift: Verify the sustainability of the shift from brokered deposits to FHLB borrowings and its impact on future funding costs.
• Net Charge-offs: Monitor the trend in net charge-offs, which increased to $1.24 million in Q2 2024, particularly in the Commercial & Industrial (C&I) and indirect home improvement segments.
• Securities Portfolio: Review the $7.85 million loss on sale of investment securities in the first half of 2024, executed to reduce duration and increase yields, and assess remaining unrealized losses in the Available-for-Sale portfolio.
• Loan Growth Quality: Assess the credit quality of the rapidly growing Commercial Business loan segment, which increased by over 20% year-over-year.
• Stock Repurchase Activity: Track the execution of the new $5.0 million repurchase program announced in July 2024.