FS Bancorp, Inc. Reports Net Income for the Third Quarter of 2021 of $8.3 Million or $0.97 Per Diluted Share and a 7% Dividend Increase to $0.15 Per Share for the Thirty-Fifth Consecutive Quarterly Dividend

Rhea-AI Summary

MOUNTLAKE TERRACE, WA, October 28, 2021 - FS Bancorp, Inc. (NASDAQ: FSBW) reported a decline in third-quarter net income to $8.3 million ($0.97/share) from $12.7 million ($1.47/share) a year earlier. The Board declared a cash dividend of $0.15 per share, increasing from $0.14, set for payment on November 24, 2021. Strong earnings facilitated $6.8 million in share buybacks, with an additional $10 million approved. Total loans receivable reached $1.68 billion, a 12.5% year-over-year increase. The company maintains a Community Bank Leverage Ratio of 11.9%, indicating robust capital management.

Positive

• Net income of $8.3 million for Q3, supported by diversified revenue streams.
• Quarterly cash dividend increased to $0.15 from $0.14, marking the 35th consecutive dividend.
• Total loans receivable increased by 12.5% year-over-year to $1.68 billion.
• Strong deposit growth, with relationship-based transactional deposits rising 28.7% year-over-year.

Negative

• Net income down 34.6% compared to Q3 2020 ($12.7 million).
• Noninterest income decreased by $9.1 million, largely due to a drop in loan sales.
• Noninterest expense increased by $2.8 million year-over-year, impacting profitability.

MOUNTLAKE TERRACE, WA / ACCESSWIRE / October 28, 2021 / FS Bancorp, Inc. (NASDAQ:FSBW) (the "Company"), the holding company for 1st Security Bank of Washington (the "Bank") today reported 2021 third quarter net income of $8.3 million, or $0.97 per diluted share, compared to $12.7 million, or $1.47 per diluted share for the same period last year. All 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.

"Our continued focus on diversified revenue streams funded by core deposits resulted in strong third quarter financial results," stated Joe Adams, CEO. "We are also pleased that our Board of Directors approved our thirty-fifth consecutive quarterly cash dividend which is being increased to $0.15 from $0.14 per share. The quarterly dividend of $0.15 will be paid on November 24, 2021, to shareholders of record as of November 11, 2021."

CFO Matthew Mullet noted, "Strong earnings during the quarter supported $6.8 million in share repurchases and the Board approved an additional $10.0 million in share repurchases based upon our capital position during the quarter."

Updated response to the novel coronavirus of 2019 ("COVID-19") pandemic:

The Company is following the Federal Housing Finance Agency guidelines for forbearance, foreclosure relief, and late payment reporting for the COVID-19 pandemic on all serviced loans and a modified format for portfolio loans. For portfolio loans, the primary method of relief is to allow the borrower up to 90-days of interest only payments and/or loan payment deferments, and, on a more limited basis, waived interest, late fees, or interest only loan payments and suspended foreclosure proceedings. As of September 30, 2021, the amount of portfolio loans under payment/relief agreements, of which all remaining relief loans are modified interest only payments, included commercial real estate loans of $6.9 million and commercial business loans of $5.4 million. Additional detail is provided below in the "Credit Quality" discussion.

As of September 30, 2021, there was a total of 171 Paycheck Protection Program ("PPP") loans with an outstanding balance of $38.3 million. To date balances totaling $88.6 million were submitted for approval and forgiven by the U.S. Small Business Administration ("SBA").

2021 Third Quarter Highlights

• Net income was $8.3 million for the third quarter of 2021, compared to $8.5 million in the previous quarter, and $12.7 million for the comparable quarter one year ago;
• Net interest income increased to $22.7 million from $21.2 million in the previous quarter, and improved from $18.9 million in the comparable quarter one year ago;
• Total loans receivable, net increased $32.4 million, or 2.0%, to $1.68 billion at September 30, 2021, compared to $1.65 billion at June 30, 2021, and increased $186.5 million, or 12.5% from $1.49 billion at September 30, 2020;
• PPP loans forgiven by the SBA during the quarter totaled $34.8 million, compared to $15.4 in the previous quarter, and none during the comparable quarter one year ago;
• Net deferred fees on forgiven and amortizing PPP loans were $823,000 during the quarter, compared to $436,000 during the prior quarter, and $183,000 during the comparable quarter one year ago;
• Relationship-based transactional deposits (noninterest-bearing checking, interest-bearing checking, and escrow accounts) increased $65.3 million, or 9.5%, to $754.7 million at September 30, 2021, from $689.4 million at June 30, 2021, and increased $168.3 million, or 28.7%, from $586.4 million at September 30, 2020;
• Repurchased 270,775 shares of our common stock during the third quarter; and
• At September 30, 2021, the Community Bank Leverage Ratio ("CBLR") was 11.9% for the Bank and the Tier 1 leverage-based ratio was 10.6% for the Company.

Asset Summary

Total assets increased $6.1 million to $2.23 billion at September 30, 2021, compared to $2.22 billion at June 30, 2021, and increased $174.1 million, or 8.5%, from $2.05 billion at September 30, 2020. The quarter over linked quarter increase in total assets was primarily due to increases in securities available-for-sale of $36.2 million and loans receivable, net of $32.4 million, partially offset by decreases in total cash and cash equivalents of $58.2 million, loans held for sale ("HFS") of $3.3 million and other assets of $899,000. The year over year increase was primarily due to increases in loans receivable, net of $186.5 million, securities available-for-sale of $95.7 million, servicing rights of $4.8 million, and securities held-to-maturity of $2.0 million, partially offset by decreases in loans HFS of $97.0 million, total cash and cash equivalents of $7.7 million, other assets of $6.3 million, certificates of deposit ("CDs") at other financial institutions of $2.5 million, and Federal Home Loan Bank ("FHLB") stock of $1.7 million.

LOAN PORTFOLIO
(Dollars in thousands)	September 30, 2021						June 30, 2021						September 30, 2020
	Amount			Percent			Amount			Percent			Amount			Percent
REAL ESTATE LOANS
Commercial	$	217,911			12.7%		$	231,196			13.8%		$	227,354			15.0%
Construction and development		250,099			14.6			242,715			14.4			191,933			12.6
Home equity		42,095			2.5			40,718			2.4			40,459			2.6
One-to-four-family (excludes HFS)		365,326			21.4			335,397			20.0			300,863			19.8
Multi-family		165,240			9.7			133,828			8.0			130,243			8.6
Total real estate loans		1,040,671			60.9			983,854			58.6			890,852			58.6
CONSUMER LOANS
Indirect home improvement		325,630			19.0			308,447			18.4			276,693			18.2
Marine		83,827			4.9			86,216			5.1			84,650			5.6
Other consumer		3,188			0.2			3,177			0.2			3,465			0.2
Total consumer loans		412,645			24.1			397,840			23.7			364,808			24.0
COMMERCIAL BUSINESS LOANS
Commercial and industrial (includes PPP loans)		207,064			12.1			242,287			14.5			224,276			14.8
Warehouse lending		49,289			2.9			54,072			3.2			39,482			2.6
Total commercial business loans		256,353			15.0			296,359			17.7			263,758			17.4
Total loans receivable, gross		1,709,669			100.0%			1,678,053			100.0%			1,519,418			100.0%
Allowance for loan losses		(26,925	)					(27,234	)					(24,799	)
Deferred costs and fees, net		(4,978	)					(5,514	)					(4,240	)
Premiums on purchased loans, net		277						359						1,124
Total loans receivable, net	$	1,678,043					$	1,645,664					$	1,491,503

Loans receivable, net increased $32.4 million to $1.68 billion at September 30, 2021, from $1.65 billion at June 30, 2021, and increased $186.5 million from $1.49 billion at September 30, 2020. The quarter over linked quarter increase in total real estate loans was $56.8 million, including increases in multi-family loans of $31.4 million, one-to-four-family loans of $29.9 million, construction and development loans of $7.4 million, and home equity loans of $1.4 million, offset by a decrease in commercial real estate loans of $13.3 million. Consumer loans increased $14.8 million, primarily due to an increase of $17.2 million in indirect home improvement loans, partially offset by a decrease in marine loans of $2.4 million. Commercial business loans decreased $40.0 million, primarily due to a decrease in commercial and industrial loans of $35.2 million, primarily due to a net decrease in PPP loans of $35.0 million.

Originations of one-to-four-family loans to purchase and to refinance a home for the three months ended September 30, 2021 and June 30, 2021, and for the three and nine months ended September 30, 2021 and 2020 were as follows:

(Dollars in thousands)	For the Three Months Ended						For the Three Months Ended						Quarter			Quarter
	September 30, 2021						June 30, 2021						over Quarter			over Quarter
	Amount			Percent			Amount			Percent			$ Change			% Change
Purchase	$	243,721			64.0%		$	252,999			63.7%		$	(9,278)			(3.7)
Refinance		136,803			36.0			143,911			36.3			(7,108)			(4.9)
Total	$	380,524			100.0%		$	396,910			100.0%		$	(16,386)			(4.1)

	For the Three Months Ended						For the Three Months Ended						Year			Year
	September 30, 2021						September 30, 2020						over Year			over Year
	Amount			Percent			Amount			Percent			$ Change			% Change
Purchase	$	243,721			64.0%		$	243,974			41.4%		$	(253)			(0.1)
Refinance		136,803			36.0			345,919			58.6			(209,116)			(60.5)
Total	$	380,524			100.0%		$	589,893			100.0%		$	(209,369)			(35.5)

	For the Nine Months Ended						For the Nine Months Ended						Year			Year
	September 30, 2021						September 30, 2020						over Year			over Year
	Amount			Percent			Amount			Percent			$ Change			% Change
Purchase	$	682,181			56.3%		$	501,686			37.1%		$	180,495			36.0
Refinance		529,705			43.7			852,202			62.9			(322,497)			(37.8)
Total	$	1,211,886			100.0%		$	1,353,888			100.0%		$	(142,002)			(10.5)

During the quarter ended September 30, 2021, the Company sold $319.9 million of one-to-four-family loans compared to sales of $378.0 million during the previous quarter, and sales of $479.6 million during the same quarter one year ago. During the nine months ended September 30, 2021, the Company sold $1.11 billion of one-to-four-family loans compared to sales of $1.12 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 decreased to 3.61% for the three months ended September 30, 2021, compared to 3.82% at June 30, 2021, and decreased from 4.44% for the three months ended September 30, 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)
	September 30, 2021							June 30, 2021
Relationship-based transactional deposits:	Amount			Percent				Amount			Percent				$ Change			% Change
Noninterest-bearing checking	$	423,091			22.7%			$	415,748			22.4%			$	7,343			1.8
Interest-bearing checking		308,142			16.5				257,206			13.8				50,936			19.8
Escrow accounts related to mortgages serviced		23,515			1.3				16,469			0.9				7,046			42.8
Subtotal		754,748			40.5				689,423			37.1				65,325			9.5
Savings		191,487			10.3				181,505			9.8				9,982			5.5
Money market		497,571			26.7				483,935			26.0				13,636			2.8
Subtotal		689,058			37.0				665,440			35.8				23,618			3.5
Certificates of deposit less than $100,000		231,453			12.4				299,250			16.1				(67,797)			(22.7)
Certificates of deposit of $100,000 through $250,000		126,095			6.8				138,559			7.5				(12,464)			(9.0)
Certificates of deposit of $250,000 and over		62,296			3.3				65,938			3.5				(3,642)			(5.5)
Subtotal		419,844			22.5				503,747			27.1				(83,903)			(16.7)
Total	$	1,863,650			100.0%			$	1,858,610			100.0%			$	5,040			0.3

(Dollars in thousands)
	September 30, 2021							September 30, 2020
Relationship-based transactional deposits:	Amount			Percent				Amount			Percent				$ Change			% Change
Noninterest-bearing checking	$	423,091			22.7%			$	338,781			21.0%			$	84,310			24.9
Interest-bearing checking		308,142			16.5				229,576			14.2				78,566			34.2
Escrow accounts related to mortgages serviced		23,515			1.3				18,062			1.1				5,453			30.2
Subtotal		754,748			40.5				586,419			36.3				168,329			28.7
Savings		191,487			10.3				144,886			9.0				46,601			32.2
Money market		497,571			26.7				377,585			23.4				119,986			31.8
Subtotal		689,058			37.0				522,471			32.4				166,587			31.9
Certificates of deposit less than $100,000		231,453			12.4				285,650			17.7				(54,197)			(19.0)
Certificates of deposit of $100,000 through $250,000		126,095			6.8				150,437			9.3				(24,342)			(16.2)
Certificates of deposit of $250,000 and over		62,296			3.3				68,242			4.3				(5,946)			(8.7)
Subtotal		419,844			22.5				504,329			31.3				(84,485)			(16.8)
Total	$	1,863,650			100.0%			$	1,613,219			100.0%			$	250,431			15.5

The increase in deposits from September 30, 2020 was primarily driven by organic growth in customer relationships and government stimulus checks deposited directly into customer accounts, and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.

At September 30, 2021, non-retail CDs, which include brokered CDs, online CDs, and public funds CDs, decreased $59.3 million to $152.6 million, compared to $211.9 million at June 30, 2021, due to a decrease of $59.3 million in brokered CDs. The year over year decrease in non-retail CDs of $20.6 million from $173.3 million at September 30, 2020, was primarily the result of a $30.6 million decrease in brokered CDs, offset by increases of $6.5 million in online CDs, and $3.5 million in public funds 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 $45.0 million quarter over quarter and $60.0 million year over year. The bulk of the wholesale funding activity has been tied to liability interest rate swap arrangements of $90 million that are funded with 90-day liabilities.

At September 30, 2021, borrowings, comprised of FHLB advances, were unchanged from $42.5 million at June 30, 2021, and decreased $131.1 million, or 75.5% from $173.6 million at September 30, 2020. The decrease in borrowings from the prior year is primarily due to the repayments of the following: $74.1 million of Paycheck Protection Program Liquidity Facility ("PPPLF") borrowings, due in part to SBA forgiveness of the underlying PPP loans, $30.0 million of FHLB advances, and $27.0 million of Federal Reserve Bank borrowings, utilizing funds primarily from deposit growth.

Total stockholders' equity decreased $1.3 million, to $240.5 million at September 30, 2021, from $241.8 million at June 30, 2021, and increased $19.9 million, from $220.6 million at September 30, 2020. The decrease in stockholders' equity during the current quarter was primarily due to common stock repurchases of $6.8 million, a decrease in other comprehensive income of $1.2 million, and dividends of $1.1 million, partially offset by net income of $8.3 million. The Company repurchased 270,775 shares of its common stock at an average price of $34.42 per share. Book value per common share was $29.78 at September 30, 2021, compared to $29.49 at June 30, 2021, and $26.41 at September 30, 2020.

The Bank is well capitalized under the minimum capital requirements established by the Federal Deposit Insurance Corporation at September 30, 2021, with a CBLR of 11.9%, 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 10.6% at September 30, 2021.

Credit Quality

The allowance for loan and lease losses at September 30, 2021, decreased to $26.9 million, or 1.57% of gross loans receivable, excluding loans HFS, compared to $27.2 million, or 1.62% of gross loans receivable, excluding loans HFS at June 30, 2021, and increased from $24.8 million, or 1.63% of gross loans receivable, excluding loans HFS, at September 30, 2020. Nonperforming loans decreased $368,000 to $5.9 million at September 30, 2021, from $6.3 million at June 30, 2021, and decreased from $7.6 million at September 30, 2020. The year over year decrease was primarily due to the improvement of a commercial real estate loan of $1.1 million to performing status.

Loans classified as substandard decreased $4.8 million to $17.5 million at September 30, 2021, compared to $22.3 million at June 30, 2021, and decreased $936,000 from $18.5 million at September 30, 2020. The quarter over linked quarter decrease in substandard loans was attributable to a $4.7 million decrease in one-to-four-family loans. The year over year decrease in substandard loans was primarily due to decreases of $4.9 million in one-to-four-family loans, $2.0 million in commercial real estate loans, $206,000 in home equity loans, and $171,000 in indirect home improvement loans, partially offset by an increase of $6.3 million in commercial and industrial loans. There was no other real estate owned ("OREO") property at September 30, 2021 or June 30, 2021, compared to one OREO property in the amount of $90,000 at September 30, 2020.

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 $868,000, $1.0 million, and $1.8 million, on $90.8 million, $100.2 million, and $159.2 million of gross loans at September 30, 2021, June 30, 2021, and September 30, 2020, respectively.

Management has identified loans that have either been directly or indirectly impacted by the COVID-19 pandemic and downgraded the risk classification and/or increased the monitoring of these loans. Commercial loans (non homogeneous loans) originally reported at a risk rating below "pass" or receiving elevated risk monitoring as a result of the COVID-19 pandemic and their respective industries at the dates indicated are as follows:

(Dollars in thousands)
Loan types:	September 30, 2021				June 30, 2021				September 30, 2020
Construction and development	$	2,771			$	2,836			$	4,335
Education/worship		-				227				4,796
Food and beverage		6,600				12,788				14,346
Hospitality		16,188				38,547				43,903
Manufacturing		602				606				18,765
Retail		1,736				1,878				2,663
Transportation		4,487				4,487				4,992
Other		4,454				13,599				23,241
Total	$	36,838			$	74,968			$	117,041

Management recognizes the potential impact of COVID-19 on all of our customers and will continue to prudently reserve for probable loan losses, including reserves against our homogenous residential and consumer portfolios.

Operating Results

Net interest income increased $3.7 million, to $22.7 million for the three months ended September 30, 2021, from $18.9 million for the three months ended September 30, 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 $2.8 million, primarily due to an increase of $2.5 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 $958,000, primarily as a result of repricing deposit rates and a reduction in higher cost borrowings. For the three months ended September 30, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $823,000. For the nine months ended September 30, 2021, net interest income increased by $9.7 million, to $64.0 million, from $54.3 million for the nine months ended September 30, 2020, in a similar manner as for the three-month comparison described above, with an increase in interest income of $5.7 million and a decrease in interest expense of $4.0 million. For the nine months ended September 30, 2021, the total recognition of net deferred fees on forgiven and amortizing PPP loans was $1.9 million.

The net interest margin ("NIM") increased 31 basis points to 4.23% for the three months ended September 30, 2021, from 3.92% for the same period in the prior year, and increased eight basis points to 4.11% for the nine months ended September 30, 2021, from 4.03% for the nine months ended September 30, 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 instead of interest-bearing cash, earning a nominal yield combined with declining deposit and borrowing costs. The slight increase in NIM between the nine months ended September 30, 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 26 basis points to 0.48% for the three months ended September 30, 2021, from 0.74% for the three months ended September 30, 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 40 basis points to 0.53% for the nine months ended September 30, 2021, from 0.93% for the nine months ended September 30, 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 no provision for loan losses for the three months ended September 30, 2021, and a $1.5 million provision for loan losses for the nine months ended September 30, 2021, compared to $3.1 million and $11.4 million for the three and nine months ended September 30, 2020, respectively. The reduction of the provision for loan losses between both periods primarily reflects improved economic factors on credit-deterioration due to the adverse impact of the COVID-19 pandemic at September 30, 2021, the increase in the loan portfolio due to organic growth, and net loan charge-offs. The reduction of the provision for loan losses also reflects improvements in "watch" classified loans that were downgraded based on the COVID-19 pandemic and which have shown loan-level improvements at September 30, 2021, compared to the same time last year. During the three months ended September 30, 2021, net charge-offs totaled $309,000 compared to net recoveries of $175,000 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 $747,000 during the nine months ended September 30, 2021, compared to net recoveries of $135,000 during the nine months ended September 30, 2020, due to the same reason mentioned above.

Noninterest income decreased $9.1 million, to $8.4 million, for the three months ended September 30, 2021, from $17.5 million for the three months ended September 30, 2020. The decrease during the period primarily reflects a $9.3 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 $527,000 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 $11.0 million, to $29.6 million, for the nine months ended September 30, 2021, from $40.6 million for the nine months ended September 30, 2020. This decrease was the result of a $10.5 million decrease in gain on sale of loans and a $1.6 million decrease in other noninterest income due to the one- time sale of Class B Visa stock shares of $1.5 million during the same period last year, partially offset by a $1.5 million increase in service charges and fee income.

Noninterest expense increased $2.8 million, to $20.0 million for the three months ended September 30, 2021, from $17.2 million for the three months ended September 30, 2020. The increase in noninterest expense reflects a $2.6 million increase in salaries and benefits, primarily attributable to a reduction in recognized deferred costs on direct loan origination activities of $4.4 million, an increase in additional staffing costs to support operational growth of $1.4 million, and an increase in medical expense of $827,000, partially offset by a decrease in incentives and commissions of $4.1 million. Noninterest expense increased $7.3 million, to $55.3 million for the nine months ended September 30, 2021, from $48.0 million for the nine months ended September 30, 2020. The increase during this period was primarily due to increases of $9.1 million in salaries and benefits, mostly attributable to a reduction in recognized deferred costs on direct loan origination activities of $5.9 million and increases in compensation of $3.0 million and medical expenses of $1.9 million, partially offset by a decrease in incentives and commissions of $2.7 million. Other increases included $661,000 in data processing, $469,000 in loan costs, and $415,000 in professional and board fees, partially offset by the $3.5 million net change in the value of servicing rights to a $2.1 million recovery of servicing rights in the current quarter. In the comparable period for 2020, we recognized an impairment charge to servicing rights of $1.4 million due to falling interest rates as a result of the interest rate environment due to the government 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 2021 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
	September 30,				June 30,				September 30,				Quarter			Over Year
	2021				2021				2020				% Change			% Change
ASSETS
Cash and due from banks	$	11,426			$	12,957			$	11,348				(12)			1
Interest-bearing deposits at other financial institutions		16,906				73,597				24,725				(77)			(32)
Total cash and cash equivalents		28,332				86,554				36,073				(67)			(21)
Certificates of deposit at other financial institutions		11,782				11,782				14,262				-			(17)
Securities available-for-sale, at fair value		268,802				232,570				173,101				16			55
Securities held-to-maturity		7,500				7,500				5,500				-			36
Loans held for sale, at fair value		118,106				121,395				215,123				(3)			(45)
Loans receivable, net		1,678,043				1,645,664				1,491,503				2			13
Accrued interest receivable		7,797				7,323				6,809				6			15
Premises and equipment, net		27,243				27,594				27,898				(1)			(2)
Operating lease right-of-use		4,875				5,193				5,251				(6)			(7)
Federal Home Loan Bank ("FHLB") stock, at cost		4,871				5,065				6,553				(4)			(26)
Other real estate owned ("OREO")		-				-				90				-		NM
Deferred tax asset, net		303				216				-				40		NM
Bank owned life insurance ("BOLI"), net		36,873				36,655				36,006				1			2
Servicing rights, held at the lower of cost or fair value		16,497				16,356				11,736				1			41
Goodwill		2,312				2,312				2,312				-			-
Core deposit intangible, net		4,220				4,397				4,928				(4)			(14)
Other assets		11,138				12,037				17,481				(7)			(36)
TOTAL ASSETS	$	2,228,694			$	2,222,613			$	2,054,626				-			8
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	446,606			$	432,217			$	356,843				3			25
Interest-bearing accounts		1,417,044				1,426,393				1,256,376				(1)			13
Total deposits		1,863,650				1,858,610				1,613,219				-			16
Borrowings		42,528				42,528				173,640				-			(76)
Subordinated notes:
Principal amount		50,000				50,000				10,000				-			400
Unamortized debt issuance costs		(623)				(639)				(100)				(3)			523
Total subordinated notes less unamortized debt issuance costs		49,377				49,361				9,900				-			399
Operating lease liability		5,097				5,401				5,468				(6)			(7)
Deferred tax liability, net		-				-				2,662				-		NM
Other liabilities		27,589				24,953				29,187				11			(5)
Total liabilities		1,988,241				1,980,853				1,834,076				-			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; 8,208,045 shares issued and outstanding at September 30, 2021, 8,333,566 at June 30, 2021, and 8,526,182 at September 30, 2020		82				83				85				(1)			(4)
Additional paid-in capital		68,481				75,797				81,634				(10)			(16)
Retained earnings		171,786				164,606				135,921				4			26
Accumulated other comprehensive income, net of tax		198				1,434				3,285				(86)			(94)
Unearned shares - Employee Stock Ownership Plan ("ESOP")		(94)				(160)				(375)				(41)			(75)
Total stockholders' equity		240,453				241,760				220,550				(1)			9
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,228,694			$	2,222,613			$	2,054,626				-			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
	September 30,				June 30,				September 30,			Qtr Over Qtr			Year Over Year
	2021				2021				2020			% Change			% Change
INTEREST INCOME
Loans receivable, including fees	$	23,520			$	22,484			$	21,066			5			12
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,487				1,313				1,162			13			28
Total interest and dividend income		25,007				23,797				22,228			5			13
INTEREST EXPENSE
Deposits		1,629				1,870				2,637			(13)			(38)
Borrowings		227				222				503			2			(55)
Subordinated notes		496				485				170			2			192
Total interest expense		2,352				2,577				3,310			(9)			(29)
NET INTEREST INCOME		22,655				21,220				18,918			7			20
PROVISION FOR LOAN LOSSES		-				-				3,100			-		NM
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		22,655				21,220				15,818			7			43
NONINTEREST INCOME
Service charges and fee income		1,073				1,188				546			(10)			97
Gain on sale of loans		6,885				6,392				16,228			8			(58)
Gain on sale of investment securities		-				-				118			-		NM
Earnings on cash surrender value of BOLI		218				215				219			1			-
Other noninterest income		222				391				435			(43)			(49)
Total noninterest income		8,398				8,186				17,546			3			(52)
NONINTEREST EXPENSE
Salaries and benefits		12,790				11,932				10,225			7			25
Operations		2,628				2,709				2,809			(3)			(6)
Occupancy		1,227				1,226				1,167			-			5
Data processing		1,309				1,203				1,127			9			16
Loan costs		842				647				593			30			42
Professional and board fees		757				786				601			(4)			26
Federal Deposit Insurance Corporation ("FDIC") insurance		120				123				290			(2)			(59)
Marketing and advertising		177				155				109			14			62
Amortization of core deposit intangible		177				177				176			-			-
(Recovery) impairment of servicing rights		(11)				4				82			(375)			(113)
Total noninterest expense		20,016				18,962				17,179			6			17
INCOME BEFORE PROVISION FOR INCOME TAXES		11,037				10,444				16,185			6			(32)
PROVISION FOR INCOME TAXES		2,706				1,895				3,472			43			(22)
NET INCOME	$	8,331			$	8,549			$	12,713			(3)			(34)
Basic earnings per share	$	0.99			$	1.00			$	1.50			(1)			(34)
Diluted earnings per share	$	0.97			$	0.97			$	1.47			-			(34)

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)

	Nine Months Ended							Year
	September 30,				September 30,			Over Year
	2021				2020			% Change
INTEREST INCOME
Loans receivable, including fees	$	67,538			$	62,370			8
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		4,050				3,520			15
Total interest and dividend income		71,588				65,890			9
INTEREST EXPENSE
Deposits		5,481				9,670			(43)
Borrowings		895				1,458			(39)
Subordinated note		1,237				511			142
Total interest expense		7,613				11,639			(35)
NET INTEREST INCOME		63,975				54,251			18
PROVISION FOR LOAN LOSSES		1,500				11,435			(87)
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		62,475				42,816			46
NONINTEREST INCOME
Service charges and fee income		3,026				1,566			93
Gain on sale of loans		24,962				35,492			(30)
Gain on sale of investment securities		-				300		NM
Earnings on cash surrender value of BOLI		647				650			-
Other noninterest income		983				2,560			(62)
Total noninterest income		29,618				40,568			(27)
NONINTEREST EXPENSE
Salaries and benefits		36,331				27,192			34
Operations		7,760				7,785			-
Occupancy		3,592				3,492			3
Data processing		3,819				3,158			21
Loss on sale of OREO		9				2			350
OREO expenses		-				2		NM
Loan costs		2,013				1,544			30
Professional and board fees		2,365				1,950			21
FDIC insurance		491				574			(14)
Marketing and advertising		429				358			20
Amortization of core deposit intangible		531				529			-
(Recovery) impairment of servicing rights		(2,057)				1,399			(247)
Total noninterest expense		55,283				47,985			15
INCOME BEFORE PROVISION FOR INCOME TAXES		36,810				35,399			4
PROVISION FOR INCOME TAXES		8,047				7,499			7
NET INCOME	$	28,763			$	27,900			3
Basic earnings per share	$	3.38			$	3.25			4
Diluted earnings per share	$	3.27			$	3.19			3

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
	September 30,			June 30,			September 30,
	2021			2021			2020
PERFORMANCE RATIOS:
Return on assets (ratio of net income to average total assets) (1)		1.49%			1.58%			2.51%
Return on equity (ratio of net income to average equity) (1)		13.82			14.41			24.04
Yield on average interest-earning assets (1)		4.67			4.58			4.60
Average total cost of funds (1)		0.48			0.54			0.74
Interest rate spread information - average during period		4.19			4.04			3.86
Net interest margin (1)		4.23			4.09			3.92
Operating expense to average total assets (1)		3.58			3.49			3.39
Average interest-earning assets to average interest-bearing liabilities		140.97			139.00			134.22
Efficiency ratio (2)		64.46			64.33			47.11

	At or For the Nine Months Ended
	September 30,			September 30,
	2021			2020
PERFORMANCE RATIOS:
Return on assets (ratio of net income to average total assets) (1)		1.77%			1.97%
Return on equity (ratio of net income to average equity) (1)		16.33			18.11
Yield on average interest-earning assets (1)		4.59			4.89
Average total cost of funds (1)		0.53			0.93
Interest rate spread information - average during period (1)		4.06			3.96
Net interest margin (1)		4.11			4.03
Operating expense to average total assets (1)		3.40			3.38
Average interest-earning assets to average interest-bearing liabilities		139.21			133.27
Efficiency ratio (2)		59.07			50.61

	September 30,			June 30,			September 30,
	2021			2021			2020
ASSET QUALITY RATIOS AND DATA:
Non-performing assets to total assets at end of period (3)		0.27%			0.28%			0.37%
Non-performing loans to total gross loans (4)		0.35			0.38			0.50
Allowance for loan losses to non-performing loans (4)		453.59			432.01			327.94
Allowance for loan losses to gross loans receivable, excluding HFS loans		1.57			1.62			1.63
CAPITAL RATIOS, BANK ONLY:
Community Bank Leverage Ratio		11.93%			11.87%			10.67%
CAPITAL RATIOS, COMPANY ONLY:
Tier 1 leverage-based capital		10.57%			10.79%			10.84%

	At or For the Three Months Ended
	September 30,				June 30,				September 30,
(Post stock split adjusted)	2021				2021				2020
PER COMMON SHARE DATA:
Basic earnings per share	$	0.99			$	1.00			$	1.50
Diluted earnings per share	$	0.97			$	0.97			$	1.47
Weighted average basic shares outstanding		8,240,218				8,393,164				8,449,642
Weighted average diluted shares outstanding		8,480,769				8,660,613				8,590,668
Common shares outstanding at end of period		8,073,412	(5)			8,197,461	(6)			8,351,196	(7)
Book value per share using common shares outstanding	$	29.78			$	29.49			$	26.41
Tangible book value per share using common shares outstanding (8)	$	28.97			$	28.67			$	25.54

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 8,208,045 at September 30, 2021, less 121,672 unvested restricted stock shares, and 12,961 unallocated ESOP shares.
⁽⁶⁾ Common shares were calculated using shares outstanding of 8,333,566 at June 30, 2021, less 110,184 unvested restricted stock shares, and 25,921 unallocated ESOP shares.
⁽⁷⁾ Common shares were calculated using shares outstanding of 8,526,182 at September 30, 2020, less 110,184 unvested restricted stock shares, and 64,802 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 September 30,							For the Nine Months Ended September 30,							QTR Over QTR			Year Over Year
Average Balances	2021			2020				2021			2020				$ Change			$ Change
Assets
Loans receivable, net of deferred loan fees (1)	$	1,776,424		$	1,648,070			$	1,745,616		$	1,537,365			$	128,354		$	208,251
Securities available-for-sale, at fair value		248,179			165,095				216,122			151,176				83,084			64,946
Securities held-to-maturity		7,500			2,462				7,500			826				5,038			6,674
Interest-bearing deposits and certificates of deposit at other financial institutions		87,440			97,473				108,536			100,836				(10,033)			7,700
FHLB stock, at cost		4,973			7,219				5,783			8,240				(2,246)			(2,457)
Total interest-earning assets		2,124,516			1,920,319				2,083,557			1,798,443				204,197			285,114
Noninterest-earning assets		93,137			94,190				90,352			97,435				(1,053)			(7,083)
Total assets	$	2,217,653		$	2,014,509			$	2,173,909		$	1,895,878			$	203,144		$	278,031
Liabilities and stockholders' equity
Interest-bearing accounts	$	1,415,139		$	1,268,795			$	1,382,860		$	1,200,796			$	146,344		$	182,064
Borrowings		42,528			152,045				71,452			138,749				(109,517)			(67,297)
Subordinated notes		49,367			9,897				42,399			9,892				39,470			32,507
Total interest-bearing liabilities		1,507,034			1,430,737				1,496,711			1,349,437				76,297			147,274
Noninterest-bearing accounts		442,291			344,731				413,551			314,789				97,560			98,762
Other noninterest-bearing liabilities		29,224			28,698				28,093			25,837				526			2,256
Stockholders' equity		239,104			210,343				235,554			205,815				28,761			29,739
Total liabilities and stockholders' equity	$	2,217,653		$	2,014,509			$	2,173,909		$	1,895,878			$	203,144		$	278,031

⁽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.

	September 30,				June 30,				September 30,
(Dollars in thousands, except share and per share amounts)	2021				2021				2020
Stockholders' equity	$	240,453			$	241,760			$	220,550
Goodwill and core deposit intangible, net		(6,532)				(6,709)				(7,240)
Tangible common stockholders' equity	$	233,921			$	235,051			$	213,310
Common shares outstanding at end of period		8,073,412				8,197,461				8,351,196
Common stockholders' equity (book value) per share (GAAP)	$	29.78			$	29.49			$	26.41
Tangible common stockholders' equity (tangible book value) per share (non-GAAP)	$	28.97			$	28.67			$	25.54

Contacts:
Joseph C. Adams,
Chief Executive Officer
Matthew D. Mullet,
Chief Financial Officer
(425) 771-5299
www.FSBWA.com

SOURCE: 1st Security Bank of Washington

View source version on accesswire.com:
https://www.accesswire.com/670003/FS-Bancorp-Inc-Reports-Net-Income-for-the-Third-Quarter-of-2021-of-83-Million-or-097-Per-Diluted-Share-and-a-7-Dividend-Increase-to-015-Per-Share-for-the-Thirty-Fifth-Consecutive-Quarterly-Dividend

FAQ

What was FS Bancorp's net income for Q3 2021?

FS Bancorp reported a net income of $8.3 million for Q3 2021.

When is the dividend payment for FS Bancorp?

The dividend payment of $0.15 per share will be paid on November 24, 2021.

What is the current Community Bank Leverage Ratio for FS Bancorp?

As of September 30, 2021, the Community Bank Leverage Ratio for FS Bancorp is 11.9%.

How much did FS Bancorp's total loans receivable increase?

Total loans receivable for FS Bancorp increased by $186.5 million, or 12.5%, year-over-year.

What caused the decrease in noninterest income for FS Bancorp?

The decrease in noninterest income was primarily due to a $9.3 million drop in gains on loan sales.